S Corps and How They Are Taxed
S corporations account for the majority of U.S. corporate entities, with 5.2 million filing returns compared to 1.6 million C corporations. Unlike C corporations, S corporations are flow-through entities where income passes to shareholders’ individual tax returns, avoiding double taxation. This analysis examines how S corporations are taxed, the eligibility restrictions they face, compensation rules for shareholder-managers, and the tax and non-tax tradeoffs that affect competitiveness and organizational choice.