It is treated similarly to a partnership in that the income and deductions РІР‚Сљpass-throughРІР‚Сњ to each shareholder to be reported on their personal income tax returns in proportion to their respective shares of ownership. However, an S corporation doesnРІР‚в„ўt pay any tax to the IRS. This means that the business is responsible for paying income tax on its earnings, and then the shareholders are responsible for paying a second tax when they receive dividends from the corporation. Most corporations are subject to the C corporation tax rules, which include double taxation. When you do, the business is then subject to a different form of taxation than typical corporations. If you satisfy these three requirements, then you must file Form 2553 to elect S corporation treatment by the IRS. Your business must operate as a domestic corporation, have only one class of stock and have no more than 100 U.S. In order to operate your business as an S corporation, you must satisfy a number of IRS requirements first. Nonetheless, the S corporation must still file an annual corporate tax return. Although it operates as a corporation, the business is not subject to double taxation since it is the shareholders, and not the corporation, who pay federal income tax on the business profits. For information on the third coronavirus relief package, please visit our РІР‚Сљ American Rescue Plan: What Does it Mean for You and a Third Stimulus CheckРІР‚Сњ blog post.Р”Р‡or tax purposes, an S corporation is somewhat of a hybrid entity that has characteristics of both a corporation and a partnership.

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