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Inc. Yourself, 11th Edition: How to Profit by Setting Up Your Own Corporation by Judith H. McQuown

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7How to Profit From Your S Corporation

In a sense, an S corporation is a hybrid. Generally, it is treated like a corporation for legal purposes but like a partnership for income tax purposes. Think of an S corporation as a conduit: Its profits and losses are not taxed. Instead, corporate income or losses flow through, and are credited or debited to the shareholders in proportion to their shareholdings. Because the shareholders are treated like partners and the corporation like a partnership for tax purposes, shareholders who are owner-employees may benefit from lower individual income tax rates.

The Tax Reform Act of 1986 suddenly made Subchapter S election very desirable because, for the first time in U.S. tax history, the maximum corporate ...

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