In this introductory video, the speaker explains that an S corporation is not a separate legal entity but a tax election made by filing Form 2553 after forming an LLC or corporation. The S corp is a pass‑through structure: it files Form 1120‑S, but all income, deductions, and credits flow through to shareholders via Schedule K‑1, which each shareholder reports on their individual 1040 return. The speaker outlines the key eligibility rules: a maximum of 100 shareholders, only allowable shareholder types (individuals, resident aliens, estates, certain tax‑exempt organizations, and certain trusts), prohibition of corporations, partnerships, and non‑resident aliens as shareholders, a single class of stock, and a permitted tax year. He notes that ineligible corporations exist and advises consulting a tax advisor. The video concludes by previewing upcoming episodes that will compare S corporations with sole proprietorships and C corporations, and invites viewers to ask questions.
Chapters
This week we are starting a series on S corporations. Now, first thing, an S corporation is not an entity. Okay, what it is, it's an election, a tax election. So you create your LLC or your corporation with your Department of State, and then you file Form 2553 with the IRS to elect S corp status. Okay, so an S corporation is what we call a pass-through entity. And that means that imagine the S corporation is this bucket, okay, bucket, and all the information goes in the top— revenue, expenses, all that stuff goes in the top. It shakes out and then it comes out the bottom in the form of what's called a K-1. And that K-1 gets reported on the individual shareholder's tax return. Okay. The S corp itself doesn't pay tax. It files a tax return, 1120-S, but it doesn't pay tax at the entity level. Okay. All of that shakes out into that K-1 That then gets reported on the shareholder's 1040. Okay. So what are some of the parameters that you have to stay within in order to be an S corporation? You can't have more than 100 shareholders. Okay. You only can have allowable shareholders. We'll get into that later. You can't, it can't be an ineligible corporation. Again, if you have questions about that, hit me up or just ask your tax advisor. They can go through what that means, ineligible. You only can have one class of stock and you have to have a permitted tax year. Okay, now let's get back to the allowable shareholder piece of this. What is an allowable shareholder in an S corporation? It's individuals, resident aliens, estates, certain tax-exempt organizations, and certain trusts. You can't— you can't— a corporation can't be— like, a C corporation cannot be a shareholder. A partnership can't be a shareholder. A non-resident alien can't be a shareholder. And it's important to know that before going in to make sure that this is the right entity for you. Now, We're going to go the next couple weeks. We're going to be going into the pros and cons of an S corporation versus things like sole proprietorships or C corporations. So we're going to get into more meat, but I wanted to start the week with a simple overview of what an S corporation is. Again, if you have any questions, please hit me up. This is all educational. There's no question that you shouldn't be able to ask, right? So hit us up. We're happy to help. Talk soon.
