GlossaryUS
What is an S corporation?
S corporation — a US corporation that passes its income through to shareholders
Short answer
An S corporation is a US corporation that elects, on Form 2553, to pass its income, losses, deductions and credits through to its shareholders. Under IRS rules its shareholders cannot be nonresident aliens.
Explained
To qualify, the IRS says the corporation must be domestic, have no more than 100 shareholders and only one class of stock. Shareholders may be individuals, certain trusts and estates; partnerships, corporations and nonresident aliens cannot be shareholders.
The election is made on Form 2553, signed by all shareholders, generally no later than the 15th day of the 3rd month of the tax year it is to take effect. Until the IRS receives and accepts it, the company is treated as a Form 1120 filer.
Good to know
- A founder who lives in Türkiye and is not a US tax resident cannot be an S corporation shareholder, and getting an ITIN does not change that.
- An S corporation can still owe tax at company level in some cases, for example on certain built-in gains and passive income.
- The eligibility rules must keep being met after the election; if one is broken, S status can end.
This page is general information, not legal or tax advice. Rules change; check the official source for the latest position or talk to us.
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