What You Should Know About S Corps, Part 1
December 10, 2019 by OSYB Staff

IntuitQuickbooks shares that before opening a new business, a decision to make would be the type of entity you want to operate:
- sole proprietorship
- partnership
- limited liability companies
- C corporations
- S corporation
So what is an S corporation? “According to the Internal Revenue Service (IRS), S corporations are corporations that elect to pass corporate income, losses, deductions, and credits to their shareholders for federal tax purposes. So an S corp is not necessarily a type of business structure as much as it is an elected tax status.”
“An S corporation is essentially a regular corporation that has applied for “S corporation” tax status. S corp shareholders report pass-through income on their personal income tax returns. By reporting income here, S corporation shareholders avoid double taxation.”
Advantages of an S corporation:
- tax benefits
- protects against personal liability unless the shareholder offered a personal guarantee
- shares to investors while minimizing their potential risk
Though an S corp status has benefits four criterion need to be met and maintained throughout the existence of the business. The criteria are:
- Must be a domestic corporation, operating in the United States
- May not have more than 100 shareholders
- Must have only one class of stock
- Must only have allowable shareholders. Other corporations, partnerships, and non-resident aliens may not be shareholders of the company.
Keep in mind that only certain companies are eligible to elect S corp status. Here are some examples of companies ineligible for S corp status:
- Banks
- Credit unions
- Any insurance company
- Any business that receives more than 95% of its gross income from exports
- Corporations that use a specific type of foreign tax credit known as a possessions tax credit
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For full article: What is an S corp? Everything small business owners need to know
Image Credit: Deposit Photos
Category: Small Business
Tags: S corp