What is the taxation method for S corporations?

S corporations utilize pass-through taxation, which means that the income, deductions, and credits of the corporation pass through to the individual shareholders rather than being taxed at the corporate level. This method avoids the double taxation typically associated with C corporations, where income is taxed at both the corporate level and again at the shareholder level when dividends are distributed. As a result, S corporations are often favored by small businesses and their owners because they can retain more of their earnings for personal use without incurring additional taxes at the corporate level.

The other taxation methods listed do not apply to S corporations. Double taxation refers to situations where the same income is taxed twice, which is primarily a characteristic of C corporations. Flat taxation implies a single rate applied to all levels of income, while progressive taxation involves rates that increase as income rises. Neither of these describes the taxation structure for S corporations, as the focus remains on the individual tax returns of their shareholders due to the pass-through nature of the income.