What is the key advantage of a Subchapter S corporation over a regular corporation?

A Subchapter S corporation, often referred to as an S corp, offers a significant advantage over a regular corporation, primarily in its taxation structure. The crucial benefit of an S corp is that it avoids double taxation, which is a common issue for standard C corporations.

In a standard C corporation, income is taxed at the corporate level first, and then again at the individual level when dividends are distributed to shareholders. In contrast, an S corporation passes through income, deductions, and credits directly to its shareholders, meaning that the income is only taxed once at the individual level. This pass-through taxation can lead to substantial tax savings for shareholders, as they are not subject to the double layer of taxation imposed on a C corporation.

The other options present misunderstandings about the nature of S corporations. For instance, instead of allowing for double taxation, the S corporation is specifically structured to eliminate this issue. While S corporations do provide certain tax advantages, like avoiding double taxation and potential tax benefits for shareholders, they do not allow shareholders to avoid all capital gains taxes, and they are subject to a limit on the number of shareholders. Therefore, the true key advantage of a Subchapter S corporation is the absence of double taxation, making it a more tax-efficient structure