What is an S corporation?


What is an S corporation?

Most new corporations filed in the State of California elect S corporation status. An S corporation is a corporation that has elected a special tax status.

This tax treatment permits the income of the corporation to be “passed through” to the shareholders. Therefore, shareholders report the income or loss which is generated by an S corporation on their individual tax returns.

In order to be labeled an S corporation, the stockholders of a properly filed corporation must elect such status within 75 days of formation for the current tax year, or at any time during the preceding tax year. This election is made by filing Form 2553 with the Internal Revenue Service (IRS). To qualify for S corporation status, the corporation must be a domestic corporation; have only one class of stock; and, have not more than 100 stockholders, who must be individuals, estates or certain trusts.

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