A tax election only; this election enables the shareholder to treat the earnings and profits as distributions, and have them pass thru directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay herself wages, and it must meet standards of "reasonable compensation". This can vary by geographical region as well
as occupation, but the basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. If you do not do this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for all of the payroll taxes on the total amount.
Sub S Corporation Advantages
Owners have limited personal liability for business debts
Owners report their share of corporate profit or loss on their personal tax returns
Owners can use corporate loss to offset income from other sources
Sub S Corporation Disadvantages
More expensive to create than partnership or sole proprietorship
More paperwork than for a limited liability company, which offers similar advantages
Income must be allocated to owners according to their ownership interests
Fringe benefits limited for owners who own more than 2% of shares.
Federal Tax Forms for Sub S Corporations
Form 1120S: Income Tax Return for S Corporation
1120S K-1: Shareholder's Share of Income, Credit, Deductions
