One drawback of an S corporation is that its earnings are taxed by the IRS, which also taxes the dividends it pays to its stockholders. This results in the double taxation of an S corporation's earnings.

Question

Quizplus · Accepted Answer

Unlike a regular corporation (C corporation), the earnings of an S corporation are not taxed at the corporate level. Instead, they "pass through" to the shareholders and are only taxed once on their individual tax returns. Therefore, there is no double taxation of earnings in an S corporation.

One Drawback of an S Corporation Is That Its Earnings