Business entities
S corporation
An S corporation is a corporation that passes its income and losses through to its shareholders, who report them on their personal tax returns.
An S corporation is a tax status, not a separate kind of company. A corporation or an LLC can ask the IRS for it. The company does not pay federal income tax on most of its profit. Instead, each shareholder reports a share of income or loss on a personal return.
Owners who also work in the business must be paid a reasonable salary through payroll. That is why S corporation owners often compare it with self-employment tax rules. A limited liability company can choose this status. The business formation page shows how entity choice fits into a new company.
Related terms
- Limited liability company (LLC)
- Reasonable compensation
- Self-employment tax
- Qualified business income deduction
Sources
Talk to Wallace CPA
Call the Southlake office and say what you need: a return, an IRS letter, your books or a new business. Have the notice or last year's return nearby if you have one.