An Overview of the Federal Taxation of S Corporations

An Overview of the Federal Taxation of S Corporations

Tax Law
By Anthony DiosdiA U.S. corporation can be taxed as either a C or S corporation. C corporations are subject to a double tax regime meaning that there is a tax at the corporate level and a second tax when a dividend is paid to the shareholders. An S corporation is an alternative to the two-tier tax system applicable to C corporations. For federal tax purposes, with an S corporation, there is no corporate taxation. Instead, only the shareholders of an S corporation are subject to tax when there is a distribution from the corporation. Since S corporations are only subject to one layer of tax, S corporate shareholders tend to recognize less tax than C corporate shareholders. This article will discuss the basic rules governing the federal taxation of S…
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