S Corporation Election

Definition

A tax status election under IRC Section 1362 that allows a qualifying corporation or LLC to be taxed as a pass-through entity, where profits flow to shareholders' personal returns rather than being taxed at the corporate level. The key tax advantage is that shareholder-employees pay FICA taxes only on their reasonable salary, while additional profit distributions avoid self-employment tax. The election is made by filing Form 2553 with the IRS.