What is the benefit of electing to be treated as a “S” corporation?
The simple explanation is that a “S” election is made to avoid double taxation. Because a corporation is viewed as a separate taxpayer, a “C” corporation files its own tax return and is obligated to pay tax on its income. When the income is later distributed to the shareholders, the same income is taxed to the shareholder a second time. To avoid this result, the shareholders may make an election to be taxed under Subchapter “S” of the Internal Revenue Code, such that the income of the corporation is taxed only once. At the initial stage of the business, “S”-type tax treatment will enable start-up losses to be passed through to the shareholders, so that they may be used to offset other income (subject to certain limitations).
