A Brief Background on S-Corporations

By Rick Bell Monday, March 2, 2009

Double taxation is a horrible practice, which many governments around the world embrace thoroughly. It’s the nasty habit of a government to tax your company’s profits, and then when you distribute the after-tax profits to the shareholders, they, too, have to pay tax on money for which the company already paid tax.

In the United States, we have wrestled with the dividend tax in many ways, but the creation of the IRS tax code known as Subchapter S is probably the best known and most effective way to avoid double taxation. Basically, it states that a company organized as an S corporation does not pay tax at the entity level. Instead, the company passes its dividends through to its shareholders and they pay the tax on their portion of ownership.

Pass-through tax treatment can also be achieved through the LLC but major corporations, with thousands of shareholders, cannot avoid double taxation since there is 100-person limit on the number of shareholders an S-Corp can have.

This blog category will help you understand all the benefits of an S corporation as time goes on. We invite you to join the conversation by leaving a question or comment.

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