An S corporation is a special type of corporation that allows income, losses, deductions, and credits to pass through to shareholders for federal tax purposes.
This structure helps avoid double taxation, as the business itself generally does not pay federal income tax. Instead, shareholders report the company’s financial results on their personal tax returns. To qualify for S corporation status, a business must file with the IRS and meet specific criteria, such as having 100 or fewer shareholders and offering only one class of stock.
Additionally, all shareholders must be U.S. citizens or residents. Companies that elect S corporation status must follow certain ongoing IRS rules to maintain compliance and eligibility.