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S Corporation TaxesPAGE4The S Corporation -- Small Business EqualizerTo relieve small businesses from the burdens of double taxation of dividends, while at the same time offering small business owners the liability protection of incorporation, the IRS adopted the S corporation status. By filing Form 2553, you can elect to have your corporation taxed as an S corporation. This means it's taxed under Subchapter S of the IRS Code. Unless you elect to become an S corporation, a corporation is automatically a C corporation. Because S corporation status is intended for smaller businesses, you must meet certain requirements to be eligible. For example, your corporation can only have one class of stock; have at most 75 shareholders; and have no non-individual, non-people shareholders -- remember, corporations as separate legal entities can own shares in other corporations. The difference between C corporations and S corporations is how they're taxed. While C corporations are taxed as separate taxable entities, S corporations are treated as "pass-through entities." In other words, S corps typically pay no income tax. Instead, S corp income "flows through" to the individual shareholders. So, if your S corporation pays dividends, those dividends will be taxed to you, the individual shareholder, at your personal income tax rate. Such dividends are only taxed once. In this way, S corps are taxed like partnerships and avoid the double taxation. This whole scenario depends on corporate form filing..... continued Page 1 - 2 - 3 - 4 - 5 - 6
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