While a corporation is a genre of business entity, an S-Corp business is a tax appointment available to specific corporations and LLCs. S-corps are specified from the subdivision of the Internal Revenue Code “S” under which the tax designation is explained. The most prominent characteristic of an S-corp is its ostensible “pass-through” tax structure.
S-Corp Tax Structure
The IRS defines S-corps as corporations that, “pass corporate income, losses, deductions, and credits through to shareholders for federal tax purposes.” In layman’s terms, S-corps are not required to pay federal corporate income tax. Alternatively, earnings from dividends is taxed only at the single level under whatever marginal income tax rate appertains. This additionally means shareholders who meet specific standards are able to offset corporate squandering with income from other sources on personal income statements.
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