What is an S-Corporation?

An S-Corporation is a corporation that is not required to pay federal income tax — unlike a C-Corporation — and instead passes on its tax liability for its profits onto its shareholders.

This means that profits earned by an S-Corporation are taxed only once — as the shareholders’ individual income. Similarly, an S-Corporation’s losses flow through to the individual shareholders and may be deducted on those shareholders’ individual tax returns, with certain limitations. Profits and losses must be allocated on the basis of percentage of each shareholder’s ownership interest and each shareholder must include as individual income the profit apportioned to the shareholder in a given year earned through the S-Corporation regardless of whether any cash was actually distributed.

To qualify for S-Corporation status, the corporation must meet the following requirements:

  • Be a domestic corporation
  • Have only allowable shareholders
  • including individuals, certain trust, and estates and may not include partnerships, corporations or non-resident alien shareholders
  • Have no more than 100 shareholders
  • Have one class of stock
  • Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

[IRS] S-Corporations
The foregoing is not intended to be, and should not be construed to be, tax advice. This website offers general answers to general questions based on information obtained from www.irs.gov and other publicly available information. Collaborative Fund cannot be held responsible for the results of any position taken on a tax return by any user of this site. Users should always obtain independent tax advice from a qualified tax professional to determine the tax consequences applicable to such user’s personal situation.

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