Sub Chapter S Corporation
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An S corporation is a taxation election you can choose when you incorporate. It is not a completely separate form of corporate entity. Many small business owners elect S corporation status because it combines many of the advantages of sole proprietorships, partnerships, and corporate structures.
S corporations have the same basic advantages and disadvantages of C corporations, but they have special tax provisions. In a standard C corporation, the profits are taxed at the corporate level by the federal government. When the profits are distributed to the shareholders as dividends, they are once again taxed as income to the individual shareholder. By electing S corporation status, a corporation does not pay taxes on its profits, and taxes are only paid when dividends are distributed to shareholders as personal income. Thus, by choosing to use an S corporation, a business owner can avoid the often heavy "double-taxation" of a C corporation.