S Corp taxation definition

For the most part, S corporations are pass-through entities, rather than separate taxpaying entities.

Even though an "S Corp" files a tax return, it passes through to its shareholders' income, deductions, gains, losses, and tax credits. The shareholders report these amounts on their individual returns.

The S Corp files a return with the IRS - Form 1120S, U.S. Income Tax Return for an S Corporation - to report the total pass-through amounts. The S corporation also completes Schedule K-1 of Form 1120S, a copy of which is given to each shareholder. The K-1 for S corporation shareholders is similar to the K-1 for partners and LLC members.

Unlike partnerships and LLCs, however, S corporations can become taxpayers if they have certain types of income.