Have a Tax Question? Ask a Tax Expert
Hi. My name is ***** ***** I will be happy to help you.
That's actually correct. S-Corp unlike regular corporation is pass-through entity. It means that the corporate profit is not taxed on corporate return but is pass to shareholders, just like in partnership or sole proprietorship. With a regular corporation (C corporation) the profit is taxed first at corporate level and than only the amount distributed to shareholder is taxed on shareholders return. With SCorp the entire profit is taxed on shareholder's tax return and the corporate return is only informational. There's no tax on 1120S.
Here's IRS publication: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporations
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
I see you read my respond. Do you have any question? Is there anything else I can help you with today?
"investment amount" or retained earnings are only allowed in C corporation where the earnings are taxed as corporate profit. With a throughput entity the entire profit is taxed on shareholder's tax return, regardless how much he took out and how much he kept for future expenses.
Scorporation is a unique form of corporation. A profit is ALWAYS taxed as income somewhere, regardless what you do with it. Money used for expansion by large corporation are previously taxed profits that were not distributed to shareholders but kept in corporation. With Scorp you don't have the option to tax the profit as corporate profit. You have to report it on your individual return.
Do you have any questions? Is there anything else I can help you with today? I see you offline now. So if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. You find the rating bar on the top of the page – 5 stars. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.