--- title: "S corporation: Definition and Sources | Tax Glossary" description: "An S corporation is a corporation that passes its income and losses through to its shareholders, who report them on their personal tax returns." url: https://wallacecpa.multisites.ai/glossary/s-corporation publisher: Wallace CPA phone: +1-877-682-1171 quote: https://wallacecpa.multisites.ai/contact --- 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](https://wallacecpa.multisites.ai/glossary/reasonable-compensation) through payroll. That is why S corporation owners often compare it with [self-employment tax](https://wallacecpa.multisites.ai/glossary/self-employment-tax) rules. A [limited liability company](https://wallacecpa.multisites.ai/glossary/limited-liability-company-llc) can choose this status. The [business formation page](https://wallacecpa.multisites.ai/services/business-formation) shows how entity choice fits into a new company. [Wallace CPA can helpNew business formation](https://wallacecpa.multisites.ai/services/business-formation) ## Related terms - [Limited liability company (LLC)](https://wallacecpa.multisites.ai/glossary/limited-liability-company-llc) - [Reasonable compensation](https://wallacecpa.multisites.ai/glossary/reasonable-compensation) - [Self-employment tax](https://wallacecpa.multisites.ai/glossary/self-employment-tax) - [Qualified business income deduction](https://wallacecpa.multisites.ai/glossary/qualified-business-income-deduction) ## Sources 1. [IRS: S corporations](https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations) ## 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. [Call (877) 682-1171](tel:+1-877-682-1171)[Send a message](https://wallacecpa.multisites.ai/contact) 180 State Street, Suite 225, Southlake, TX 76092