S corporations (also known as Subchapter S corporations) are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
• Have only allowable shareholders
o may be individuals, certain trusts, and estates, and
o may not be partnerships, corporations, or non-resident alien shareholders
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e., certain financial institutions, insurance companies, and domestic international sales corporations).

In Washington State, as in the rest of the United States, S corporations are recognized as a way to structure a business to pass income directly to shareholders, avoiding the double taxation typically associated with corporate income. To be considered an S corporation, the entity must be a domestic corporation with allowable shareholders that include individuals, certain trusts, and estates, but not partnerships, other corporations, or non-resident alien shareholders. The corporation is limited to having no more than 100 shareholders and must maintain only one class of stock. Certain types of corporations, such as financial institutions, insurance companies, and domestic international sales corporations, cannot elect S corporation status. S corporations in Washington are subject to the same state-level regulations as other business entities, including business and occupation taxes, but they benefit from the pass-through taxation at the federal level. Shareholders must report their share of the corporation's income or loss on their personal tax returns, and they are taxed at their individual income tax rates. The corporation itself may be taxed on certain gains and passive income.