An S Corporation or S Corp is an eligible domestic corporation that has elected to be treated as an S Corporation for tax purposes. S Corporations avoid double taxation on corporate income because corporate income, losses, deductions and credits are passed through to the shareholders. Shareholders of the S corporation report the income and losses on their personal tax returns. However, S Corps are responsible for tax on certain built-in gains and passive income at the entity level.
Undistributed taxable income of the S corporation that is passed through to its shareholders is not treated as earnings from self- employment (Rev. Rul. 59-221, 1959-1 C.B. 225) and is therefore not subject to self-employment tax. Read more