Which of the following is a benefit of an S corporation?

An S corporation provides a distinct advantage known as pass-through taxation, which is a key benefit for many business owners. In a pass-through structure, the S corporation itself does not pay federal income tax at the corporate level; instead, income, deductions, gains, and losses are "passed through" to the shareholders' individual tax returns. This means that the income is taxed only once at the individual level, helping to avoid the double taxation typically associated with corporate profits, where both the corporation and the shareholders pay taxes on earnings.

This pass-through mechanism simplifies tax reporting for the business owners and can potentially lower their overall tax liability. Shareholders receive their share of the corporation's income on their tax returns, usually leading to a more favorable tax situation compared to traditional corporations, where corporate profits can be taxed at the entity level and then again at the individual level when distributed as dividends.

In contrast, the other options highlight aspects that are not benefits of an S corporation, such as unlimited liability for shareholders, which is not applicable since shareholders typically enjoy limited liability protections. The ability to offer stock options to employees may be possible but is not unique to S corporations, as it can also be accomplished by other corporate forms. Lastly, double taxation on profits is specifically avoided