What is an “S” corporation and what are its tax implications?
What is an “S” corporation and what are its tax implications?
An S corporation is very different from a C corp, and the biggest difference is that the S corporation doesn’t, by itself, pay tax- it’s what we call a “pass-through entity.” The income is passed through to the shareholders, sometimes corporate, sometimes individual, and the tax is assessed at that level. Certain states, as in California, where I am, assess a small tax on S corp income, but generally, S corporations are pass-through entities.The other significant difference between S and C corporations is that S corporations limit the number of shareholders that are allowable, whereas C corporations do not. In 27, the limitation on S corp shareholders is 75.
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