Describe an S Corporation?
S Corporation is defined by the IRS (Internal Revenue Service) in the tax code of Subchapter S. It is a business unitthat is allowed to pass income to shareholders and be exempted from paying federal corporate taxes. This is also referred to as "pass-through entity"'. Income is inclusive of any loss, deduction and credit. The Form 1120 S is used to disclose and report income to the IRS. S Corps have the benefit of getting money free of corporate tax and taxation in double is avoided.
Small entities that have less than 100 shareholders can be related to the concept of S Corp. The shareholders pay Tax at the normal rate and loss or income is reported while filing taxes individually.
The form 1120-S is mandatory when the business is at the S Corp Status. The form is submitted by March 15 of a particular calendar year. In other words it is due by the 15th of the third month in a fiscal year.
Shareholders in an S Corporation:
They may be trusts, few kind of tax-exempt entities or estates and individuals.
Key Requirements for an S Corp Status:
The IRS makes following mandatory for businesses to get a status of S Corp:
Incorporated within the USA (Domestic)
Stock should be of one particular class
Number of shareholders should not exceed 100
Shareholders can be individuals, estates or trusts and tax exempt organisations under (501 (C) (3)). Partnership entities and non –resident aliens are not included.
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