What is an S corporation? An S corporation is a regular
corporation that lets you enjoy the limited liability of a
corporate shareholder but pay income taxes on the same basis as
a sole proprietor or a partner. In a regular corporation (also
known as a C corporation), the company itself is taxed on
business profits. The owners pay individual income tax only on
money that they draw from the corporation as salary, bonuses or
dividends. By contrast, in an S corporation, all business
profits “pass through” to the owners, who report them on their
personal tax returns (as in sole proprietorships, partnerships
and LLCs). The S corporation itself does not pay any income tax,
although a co-owned S corporation must file an informational tax
return like a partnership or LLC — to tell the IRS what each
shareholder’s portion of the corporate income is. Most states
follow the federal pattern when taxing S corporations: They
don’t impose a corporate tax, choosing instead to tax the
business’s profits on the shareholders’ pe