| An S corporation is a corporation that for tax | | | | one kind of stock and no more than 100 investors. |
| purposes that decides to be taxed under the Revenue | | | | Spouses and families are thought of as a single |
| Code Subchapter S of chapter 1. | | | | shareholder. They must be U. S. Residents or citizens, |
| For the most part, these companies, or corporations, | | | | and must be a physical a true person. Gains and |
| do not pay income taxes. What happens is they divide | | | | losses must be given according to the interest in the |
| the corporation's return or losses among to the | | | | business of the investor. |
| shareholders. It is then up to the shareholders to report | | | | If a corporation is able to meet those requirements and |
| the gains or losses on their tax returns. | | | | wishes to be taxed under those rules, its shareholders |
| The status of S corporation gives a lot of the same | | | | may file the required form with the IRS 2553. This |
| benefits as a partnership while providing the owners | | | | form has to be signed by all of the corporation's |
| with partial responsibility protection from creditors. The | | | | investors. If an investor lives in a community property |
| rules are written in Internal Revenue Code. | | | | state, then his/her spouse must also sign the form. |
| S corporations are normally a business according to | | | | The election to be considered an S corporation must |
| law of the state in where the company is located. | | | | be done by March 15th of the same tax year that the |
| They are separate from the shareholders. For tax | | | | corporation intends for the election to be effective. It |
| reasons S corporation taxes are close to partnerships | | | | can also be done during the year before the tax year. |
| taxes. In a partnership, the return, losses, and tax | | | | The IRS has been told by Congress to show kindness |
| credits of an S corporation go to shareholders yearly, | | | | with regard to late S elections. |
| even if distributions are not made. This is why the | | | | The inability to meet the necessary stipulations to be |
| return is taxed at the investor not the corporate level. | | | | considered an S corporation will cause the entity to |
| Compensation to the shareholders is given out | | | | lose that status and be considered and C corporation |
| tax-free according the previous earnings that were | | | | again. |
| previously taxed. Certain corporate penalty taxes do | | | | FICA and unemployment taxes do not change |
| not apply to S corporations. | | | | because a business obtains the status of an S |
| These corporations are ineligible for dividend received | | | | corporation. The status change only affects the |
| deductions. | | | | income tax of the corporation. |
| S corporations also do not have the 10 percent of | | | | An employee's wages are what the FICA taxes are |
| taxable return limitation that is applied to charitable | | | | enforced on, not profits. The IRS, or any state agency, |
| contribution deductions. | | | | can choose to re-categorize the profits of an |
| For a corporation to be considered an S corporation, | | | | employee shareholder, if they deem that the wages |
| they have to meet certain requirements. The | | | | paid are not enough to cover the services given by |
| corporation must be eligible. They can only have only | | | | the employee shareholder. |