(15) S Corporations

S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their 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. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S corporation status, the corporation must meet the following requirements:

• Be a domestic corporation

• Have only allowable shareholders

  • May be individuals, certain trusts, and estates and

  • May not be partnerships, corporations or non-resident alien shareholders

• Have no more than 100 shareholders

• Have only one class of stock

• Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

In order to become an S corporation, the corporation must submit Form 2553, Election by a Small Business Corporation signed by all the shareholders. See the Instructions for Form 2553PDF for all required information and to determine where to file the form.