Question

An S corporation is considered a flow-through business entity that has the advantages of both the corporation and proprietorship. Discuss the general rules that govern S corporations. What are some of the operational rules that effect various code provisions on S corporations? Go to www.irs.gov and provide a synopsis of the similarities and differences between S corporations and one other form of business

Answer 1

An S corporation is considered a flow through business entity as all the profits or loss are passed through to the shareholders of the Corporation and nothing remains taxable in hands of the corporation and even losses are transferred to the shareholders and they can reduce the basis of there investment value in stock of corporation or debt given to the corporation by setting off the losses.

Difference Between "C Corporation" and " S Corporation"

1) In case of C Corporation, income is taxed at two levels i.e at level of corporation and at shareholders level while in case of S Corporation, income is passed through to the shareholders.

2) In case of C corporation , shareholders need to pay tax only at the time of actual distribution is made or any amount is distributed to them while in case of S corporation, tax need to be paid by the shareholders only irrespective of whether any amount is distributed to them or not by the S corporation.