What is an S-Corporation? | IRS Definition of a S-Corp

An S-corporation is a type of small business corporation that has what’s known as “pass through income.” The income simply passes through from the S-corporation into the business owners themselves, and the business owners become responsible for any profits and losses for the business. S-corporations are chosen because the funds involved aren’t taxed twice. Instead, the company isn’t taxed at all, and only the partners are taxed.

S-corporations aren’t built through the business structure, but rather a form filed with the IRS. When the company pays its taxes, it will be able to send in a form that elects S-corporation taxation. Then it will pay its taxes accordingly. To do this, the company is going to have to have an EIN. An EIN is an employer identification number (also known as a federal tax ID) which identifies it to the IRS.

An EIN is not automatically assigned when the company is formed. It has to be acquired separately. A business should get an EIN when it forms, to ensure that it has it when it needs to file tax returns, pay local taxes, and open business bank accounts.



Written by Maurice Mallory