what is an s corp 
an s corp or s corporation is a business structure that is permitted under the tax code to pass its taxable income credits deductions and losses directly to its shareholders that gives the s corp certain advantages over the more common c corp the s corp is available only to small businesses with 100 or fewer shareholders it is an alternative to the limited liability company llc both s corps and llcs are known as pass through entities because they pay no corporate taxes instead they pay their shareholders who become responsible for the taxes due understanding s corpss corp gets its name from subchapter s of the internal revenue code under which it has elected to be taxed the key characteristic of a corporation filed under subchapter s it may pass business income losses deductions and credits directly to shareholders without paying any federal corporate tax this is known as a pass through entity this gives it some special tax benefits under 2017 s tax cuts and jobs act however it is liable on the corporate level for taxes on specific built in gains and passive income 12aside from its tax status an s corp is similar to any other corporation or c corporation as they re officially known an s corp is a for profit company incorporated under and governed by the same state corporation laws it offers similar liability protection ownership and management advantages as a c corp 3an s corp must also observe internal practices and formalities that include 4the main difference between an s corp and a c corp is how each is taxed c corp profits are taxed when earned and then taxed again when distributed to shareholders as dividends this results in a double tax 5an s corp may pass income directly to shareholders without having to pay federal corporate taxes 2to qualify for s corporation status a business has to meet certain internal revenue service irs requirements 2partnerships corporations and nonresident aliens cannot qualify as eligible shareholders s corp shareholders report income gains and losses from the corporation on their individual tax returns and they pay taxes at their ordinary income tax rates since the money comes to them free of corporate tax s corp status prevents double taxation of any income or earnings from the corporation 2to create an s corporation a business must first be incorporated it then must file form 2553 with the irs this form is known officially as election by a small business corporation it states that the irs will accept the s corp status only if the business meets all the qualifications for the status all shareholders have signed the consent statement an officer has signed below and the exact name and address of the corporation entity and other required form information have been provided 6advantages and disadvantages of s corporationstax benefits no or lesser corporate and self employment tax for owner no double taxation for shareholdersprotections of incorporation limited liability transfer of interestsprestige credibilitycosts of incorporationcomplex compliance rulespotentially growth inhibiting qualifications to maintain statuss corp vs llca limited liability company llc is another type of legal business entity like the s corp it s a common go to structure for small businesses llcs and s corps share other characteristics as well both are pass through entities meaning that they don t pay corporate taxes both offer limited liability protection for their owners principals meaning that the owners personal assets can t be touched by business creditors nor can they be held personally responsible in lawsuits filed against the company 3as a pass through entity llc owners also have tax benefits due to the tax cuts and jobs act just as s corp owners do 1however llcs are more flexible than s corps they aren t subject to the irs regulations concerning the number and type of shareholders owners called members or to other federal or state rules regarding governance no required board meetings or minutes procedure and distribution of funds and they can allocate their profits and losses in whatever proportions the owners desire 14easier to establish than s corps llcs typically are formed by sole proprietors or small groups of professionals like attorneys doctors or accountants however their financing options are more limited generally to bank loans as opposed to equity investors in turn this can limit their potential for growth u s income tax return for an s corporationalthough they are largely exempt from corporate taxes s corporations must still report their earnings to the federal government and file tax returns form 1120 s is essentially an s corp s tax return often accompanied by a schedule k 1 which delineates the percentage of company shares owned by each individual shareholder form 1120 s reports the income losses dividends and other distributions that the corporation has passed to its shareholders 1920unlike c corps which must file quarterly s corps only file once a year like individual taxpayers 21 form 1120 s is simpler than tax forms for c corporations too the version for tax year 2023 ran five pages 22as long as a company elects s corporation status and the irs has accepted that election it must file form 1120 s the form is due by the 15th day of the third month after the end of its fiscal year generally march 15 for companies that follow a calendar year 23like individuals s corporations can request a six month extension to file their tax returns to do so they must file form 7004 application for automatic extension of time to file certain business income tax information and other returns by their return s regular due date 24