{"id":856,"date":"2025-03-26T11:07:10","date_gmt":"2025-03-26T11:07:10","guid":{"rendered":"https:\/\/www.tax1099.com\/glossary\/?p=856"},"modified":"2025-03-27T12:51:22","modified_gmt":"2025-03-27T12:51:22","slug":"s-corporation","status":"publish","type":"post","link":"https:\/\/www.tax1099.com\/glossary\/s-corporation\/","title":{"rendered":"S-Corporation (S-Corp)"},"content":{"rendered":"

An S-Corporation (S-Corp) is a US business entity that combines corporate liability protection with pass-through taxation under IRS Subchapter S. The following is an exhaustive glossary of terms, regulations, and compliance.<\/span><\/span>\u00a0<\/span><\/p>\n

 <\/p>\n

Core Definitions<\/span><\/span>\u00a0<\/span><\/h2>\n

<\/p>\n\n\n\n\n\n\n\n\n\n\n
Term<\/th>\nDefinition<\/th>\n<\/tr>\n<\/thead>\n
S-Corporation<\/td>\nA legal entity electing IRS Subchapter S status (on Form 2553) to pass income, deductions, and credits to shareholders, avoiding double taxation.<\/td>\n<\/tr>\n
Pass-Through Taxation<\/td>\nA tax system that transfers business income to individual shareholders’ tax returns to exclude federal corporate income tax.<\/td>\n<\/tr>\n
Shareholder<\/td>\nA person, trust, or estate that owns shares in an S-Corp. Limited to 100 shareholders, all of whom must be U.S. citizens or residents.<\/td>\n<\/tr>\n
Form 1120-S<\/td>\nThe IRS form to file an S-Corp’s income, losses, deductions, and credits. Shareholders get Schedule K-1 to report their share.<\/td>\n<\/tr>\n
Reasonable Compensation<\/td>\nA mandate that shareholder-employees receive a market-rate salary subject to payroll taxes (FICA), avoiding IRS reclassification risk.<\/td>\n<\/tr>\n
Subchapter S Election<\/td>\nThe formal process of making the S-Corp election by filing Form 2553 with the IRS within 75 days of incorporation.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/p>\n

 <\/p>\n

Tax and Compliance Terms<\/span><\/span>\u00a0<\/span><\/h2>\n\n\n\n\n\n\n\n\n
Term<\/th>\nDefinition<\/th>\n<\/tr>\n<\/thead>\n
Schedule K-1<\/td>\nA report issued to shareholders detailing their allocable share of the S-Corp’s income, deductions, and credits for reporting on their personal tax return.<\/td>\n<\/tr>\n
Basis Calculation<\/td>\nAn investor’s interest in the S-Corp used to determine taxable gains or losses on sale or distribution.<\/td>\n<\/tr>\n
Built-In Gains Tax<\/td>\nA 21% federal tax on S-Corps disposing of assets that appreciated during five years from C-Corp conversion.<\/td>\n<\/tr>\n
Accumulated Earnings Tax<\/td>\nA penalty tax imposed if the IRS finds an S-Corp earns more than is needed for the business.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

S-Corp vs. LLC Taxed as S-Corp<\/span><\/span>\u00a0<\/span><\/h2>\n

<\/p>\n\n\n\n\n\n\n\n
Element<\/th>\nS-Corporation<\/th>\nLLC Taxed as S-Corp<\/th>\n<\/tr>\n<\/thead>\n
Legal Structure<\/td>\nIssued stock formal corporation.<\/td>\nFlexible S-Corp LLC structure using Form 2553.<\/td>\n<\/tr>\n
1099 Reporting<\/td>\nNo\u2014corporations exempt from 1099-MISC on services.<\/td>\nYes, if the LLC is treated as a disregarded entity and paid $600+ for services.<\/td>\n<\/tr>\n
Operational Flexibility<\/td>\nMust have corporate formalities (e.g., bylaws, board meetings).<\/td>\nHas an LLC agreement, with less procedural requirements.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/p>\n

 <\/p>\n

IRS Compliance Requirements<\/span><\/b>\u00a0<\/span><\/p>\n

1. Eligibility:<\/span><\/b>\u00a0<\/span><\/p>\n

Maximum of 100 shareholders; no non-resident alien shareholders.<\/span>\u00a0<\/span><\/p>\n

Single class of stock (variations in voting rights permitted).<\/span>\u00a0<\/span><\/p>\n

2. Tax Filing:<\/span><\/b>\u00a0<\/span><\/p>\n

    \n
  • Form 1120-S filing due March 15; extensions to September 15.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
      \n
    • Shareholder Schedule K-1s must be sent by March 15.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n

      3. 1099 Rules:<\/span><\/b>\u00a0<\/span><\/p>\n

        \n
      • Do S-Corps get 1099?<\/span><\/b> Exempt under IRS rules except for an LLC form.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n
          \n
        • Do LLC S-Corps get 1099?<\/span><\/b> Required if payments for services more than $600 and the LLC is not taxed as a corporation.<\/span>\u00a0<\/span><\/li>\n<\/ul>\n

           <\/p>\n

          <\/p>\n\n\n\n\n\n\n\n
          Advantages<\/th>\nDisadvantages<\/th>\n<\/tr>\n<\/thead>\n
          Prevention of double taxation.<\/td>\nMore restrictive ownership and operating requirements.<\/td>\n<\/tr>\n
          Shareholders have limited liability protection.<\/td>\nGreater administrative expenses (e.g., filings, payroll).<\/td>\n<\/tr>\n
          Less self-employment tax on distributions.<\/td>\nPenalties for mistakes in calculation of salary or basis.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

          An S-Corporation (S-Corp) is a US business entity that combines corporate liability protection with pass-through taxation under IRS Subchapter S. The following is an exhaustive glossary of terms, regulations, and compliance.\u00a0   Core Definitions\u00a0 Term Definition S-Corporation A legal entity electing IRS Subchapter S status (on Form 2553) to pass income, deductions, and credits to […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[],"class_list":["post-856","post","type-post","status-publish","format-standard","hentry","category-s"],"yoast_head":"\nS-Corporation Taxation & Compliance: A Complete Glossary<\/title>\n<meta name=\"description\" content=\"Understand S-Corporation taxation, compliance, and IRS rules, including pass-through taxation, Form 1120-S, and shareholder requirements.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.tax1099.com\/glossary\/s-corporation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"S-Corporation Taxation & Compliance: A Complete Glossary\" \/>\n<meta property=\"og:description\" content=\"Understand S-Corporation taxation, compliance, and IRS rules, including pass-through taxation, Form 1120-S, and shareholder requirements.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.tax1099.com\/glossary\/s-corporation\/\" \/>\n<meta property=\"og:site_name\" content=\"tax1099 - 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