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S Corporation

[ess kor-puh-RAY-shuhn]

What is the definition of S Corporation?
A type of corporation that elects to pass corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates, allowing S corporations to avoid double taxation on the corporate income.
Using S Corporation in an Example

An S Corporation with three shareholders earns $300,000 in taxable income. Instead of the corporation paying federal income tax, this income is divided among the shareholders. Each shareholder reports their portion of the income, $100,000, on their individual tax returns and pays tax based on their personal income tax rates.

Using S Corporation in a sentence

During the meeting, the business owner explained that choosing an S Corporation status would be beneficial as it allows income to pass directly to shareholders, potentially reducing the tax burden.

Related Terms

Surviving Spouse

A person whose spouse has died within the tax year and who may file a joint tax return for that year. Additionally, the surviving spouse can file joint returns for the next two years if they remain unmarried and maintain a household as the principal residence for a dependent child.
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Swap

A financial contract in which two parties agree to exchange streams of payments over a specified period, based on different indices such as interest rates, foreign exchange rates, or equity indices, applied to a notional amount. Swaps typically do not involve the exchange of principal.
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