Guidance for Special Types of Businesses
Special Rules for Certain Business Structures
Special Provisions for S-Corporations
An S corporation is a qualifying corporation that chooses to have
its income taxed to the shareholders rather than to the corporation itself, except as
noted below under Taxes. Its shareholders will then include in income their share of the
corporation's nonseparately stated income or loss and separately stated items of income,
deduction, loss, and credit.
To make this election, a corporation, in addition to other
requirements, must not have more than 75 shareholders. Each of its shareholders must also
consent to the election.
Taxes. Although it is generally not liable for federal income
tax itself, an S corporation may have to pay the following taxes.
1. A tax on:
A. Excess passive investment income,
B. Certain capital gains, or
C. Built-in gains.
2. The tax from recomputing a prior year's investment credit.
3. LIFO recapture tax.
An S corporation may have to make quarterly estimated tax payments
for these taxes.
An S corporation files its return on Form
1120S.
For more information on S corporations, see the instructions
for Form 1120S.
To elect to be an S corporation, a corporation must file
Form
2553. The election permits the income of the S corporation
to be taxed to the shareholders of the corporation rather than to
the corporation itself.
Important References:
Form
1120S U.S.
Income Tax Return for an S Corporation
Instructions
Form 1120S
Form
2553
Election by a Small Business Corporation
Publication
225 Farmer's Tax Guide