Business Entities

S-corp

An S-corp is a tax election that allows qualifying businesses to pass income through to owners while splitting owner pay between salary and distributions when the facts support it.

Quick answer

An S-corp is a tax election that allows qualifying businesses to pass income through to owners while splitting owner pay between salary and distributions when the facts support it.

It matters because the election can reduce self-employment-style tax exposure for some profitable owner-operated businesses.

A profitable LLC may elect S-corp treatment so the owner takes salary plus distributions instead of treating all profit the same way.

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Plain-English Definition

What S-corp means

An S-corp is a tax election that allows qualifying businesses to pass income through to owners while splitting owner pay between salary and distributions when the facts support it.

Why it matters It matters because the election can reduce self-employment-style tax exposure for some profitable owner-operated businesses.
Simple example A profitable LLC may elect S-corp treatment so the owner takes salary plus distributions instead of treating all profit the same way.
Related Questions

Questions people ask about S-corp

What does S-corp mean?

An S-corp is a tax election that allows qualifying businesses to pass income through to owners while splitting owner pay between salary and distributions when the facts support it.

Why does S-corp matter?

It matters because the election can reduce self-employment-style tax exposure for some profitable owner-operated businesses.

What is a simple example of S-corp?

A profitable LLC may elect S-corp treatment so the owner takes salary plus distributions instead of treating all profit the same way.

When should I ask a CPA about S-corp?

Ask a CPA when the term affects how your business is taxed, how owners are paid, or whether an election could reduce tax.

How is S-corp different from LLC?

S-corp means An S-corp is a tax election that allows qualifying businesses to pass income through to owners while splitting owner pay between salary and distributions when the facts support it. LLC means An LLC, or limited liability company, is a legal business structure that can be taxed in different ways depending on elections and ownership. The difference is that they apply to different tax, accounting, or business situations and should not be treated as interchangeable.

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