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.

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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