An S Corporation is a special type of corporation that allows income, losses, deductions, and credits to pass through to shareholders for federal tax purposes. This means that the corporation itself does not pay federal income tax; instead, shareholders report the income on their personal tax returns. This structure helps avoid double taxation, which is common in traditional C Corporations. To qualify as an S Corporation, a business must meet specific requirements, such as having no more than 100 shareholders and being a domestic corporation. Additionally, all shareholders must be U.S. citizens or residents. This structure is popular among small businesses seeking tax benefits while maintaining limited liability protection.