Most large corporations are classified as C corporations and are required to file a federal corporate income tax return with the IRS every year.If the corporation qualifies
If the corporation qualifies, it may elect to be an S corporation. These companies do not (with certain exceptions) pay corporate tax on income. Their income is instead passed through and taxed to shareholders. There are several requirements a corporation must meet to qualify as an S corporation, including having 75 or fewer shareholders and having only one class of stock. The reduction of individual income tax rates, passed in 2001 and accelerated in 2003, has greatly increased the number of firms that save taxes by organizing as S corporations.