Accounting



What is Subchapter S?

Subchapter S refers to a section of Chapter 1 of the U.S. Internal Revenue Code.

A subchapter S corporation, which is also referred to as an S corporation, is a corporation that does not pay the income taxes on its income. Rather, the owners of the S corporation are responsible for the income taxes which pertain to their share of the S corporation’s income. Hence, the income statement of an S corporation does not report income tax expense, and the balance sheet does not report income taxes payable.

There are certain requirements in order to elect the Subchapter S status. Learn more about S corporations at IRS.gov or from a tax professional.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

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Comments

One Response to “What is Subchapter S?”

  1. richard on March 23rd, 2010 8:21 am

    for an s-corp. we have net income of 10k and cash balance of 25k due to depreciation expense. we are reducing the cash balance by 20k. how is the depreciation affect accounted for on the 1120s. is the depreciaiton amount added back to AAA and the withdrawl shown as a distribution or is the withdrawl up to the amount of straight line depreciation not shown as a distibution for 1120s and basis reporting?

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