S Corporations are exempt from federal income tax except for certain capital gains and passive income. Similar to the LLC, the S Corporation allows profit to pass through to its shareholders, and the income is then taxed on the shareholders’ personal tax returns at each shareholder’s individual tax rates. Because the S Corporation is a pass-through entity, this ensures that the corporation’s profits are only taxed once – at the shareholder level. This means that S Corporations avoid having to pay what is often referred to as “double taxation” of dividends. See how much you can save with our S Corporation Tax Calculator.