Many mistakenly think this is a type of corporation. This is a shorthand term describing any corporation that elects to be taxed in a certain way. It is called electing “S” status. A corporation’s default tax status results in one tax on the corporate income and then another tax on the individual owner when profits are paid as dividends. The S status election eliminates this “double tax” problem. All corporate profits are taxed at the individual’s rate only. This election makes sense for most small businesses. It’s best to consult with an accountant for specifics for your company.
Are there S LLCs?
Limited liability companies may also elect S status. The default tax rules for LLCs are different than for corporations. Single member LLCs are taxed like sole proprietorships. Multi-member LLCs are treated as partnerships. There are important differences in the tax rules applicable to LLCs and corporations so choose wisely.