S - Corporation - Explained

The video explains the tax selection of an S corporation, which allows for pass-through taxation under subsection S of the Internal Revenue Code, avoiding double taxation. To qualify, all shareholders must agree to the S selection, be human, and be US citizens or certain trusts. The corporation can have up to 100 shareholders, with families often counted as one. Only one class of shares is allowed, typically common shares. This structure benefits small to mid-sized businesses with its tax advantages.

What is the primary tax advantage of electing S corporation status?

• Receiving tax credits for losses

• Being taxed on a pass-through basis

• Avoiding all taxes

• Paying taxes only on profits

Which of the following is NOT a requirement for S corporation shareholders?

• All shareholders must be human beings

• All shareholders must agree to the S selection

• Shareholders must be U.S. citizens or certain trusts

• Shareholders can be business entities

How many total shareholders can an S corporation have, considering family members?

• 50

• 150

• 200

• 100

What is the limitation on the types of shares an S corporation can issue?

• Two classes of shares

• Unlimited classes of shares

• Only one class of shares

• Multiple classes of preferred shares

Why might small to mid-sized businesses choose S corporation status?

• To avoid all taxes

• To have more than 100 shareholders

• For the pass-through tax treatment

• To issue multiple classes of shares