What is an S-Corporation? | Definition of an S-Corporation

8 Apr 2020

Do you have a good sense of what it means to be one of the various types of corporations in the United States? The United States federal income tax code recognizes all sorts of types of businesses or corporations. One of these is none other than the S-Corporation. What exactly is an S-Corporation, though, and why should you care? To qualify as an S-Corporation, you need to go through an election process with the Internal Revenue Service. Once you are approved, it is then that you can take advantage of the tax benefits.

In short, the S-Corporation is different than other corporations in the way it pays taxes. The S-Corporation itself does not pay any income taxes. The thing that happens with an S-Corporation is that all of the income and the losses associated with the company flow down to the shareholders. The shareholders receive a document, known as a K-1, which shows their share of the income and or losses of the S-Corporation. They will then be taking that information and using it file their tax return. Each S-Corporation must obtain an EIN Number in order to file its taxes.