An S corporation is a special type of corporation that allows income, losses, and tax credits to pass through to its shareholders, avoiding double taxation. This means that the corporation itself does not pay federal income tax; instead, shareholders report their share of the income on their personal tax returns. 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 often chosen by small businesses for its tax benefits and limited liability protection.