What is one major benefit of "S Corporations"?

One major benefit of S Corporations is the avoidance of double taxation on income. S Corporations are designed to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. This means that the income is only taxed at the individual level on the shareholders’ personal tax returns, rather than being taxed at both the corporate level and again at the individual level, which is the case for C Corporations. This single layer of taxation can lead to significant tax savings for shareholders, making S Corporations an attractive structure for small to medium-sized businesses and individuals looking to minimize their tax burden while still benefiting from limited liability protection.

The other choices do not accurately represent the significant advantages of S Corporations. Reduced reporting requirements is a benefit that may apply in certain contexts, but it is not a distinguishing feature compared to other entities. Higher tax rates on profits do not apply, as S Corporations actually allow shareholders to pay taxes at their individual rates, which may be lower than corporate tax rates. Unlimited growth potential without tax liability misrepresents the nature of S Corporations, as while they do allow for growth, they must also adhere to strict limitations regarding the number of shareholders and types of shareholders, and do not provide an absolute