If corporation is profitable, its stockholders can receive a return on their investment through the payment of dividends. Dividends must be approved by the board of directors and are taxable to the stockholders as ordinary income. Unless a corporation elects special tax treatment under Subchapter S of the Internal Revenue Code, the corporation's net income is subject to taxation at rates sometimes higher than those applying to individuals. To avoid this double-taxation effect, subject to certain restrictions, a corporation can elect a different tax treatment under Subchapter S of the Internal Revenue Code. If this election is made, the corporation is treated virtually the same as a partnership for tax purposes.
Corporate losses can also pass through and be taken as losses on the stockholders' personal returns.
Consultation with an accountant is highly recommended before deciding whether to elect Subchapter S. Dividends are not the only way stockholders can receive money from a corporation. If the salary is reasonable, it will be a deductible expense in its entirety for the corporation. Of course, the salary will be taxable to the stockholder. The corporation can deduct the interest payments but not the principal payments. If a stockholder leases real or personal property to the corporation, the rent payments will be deductible for the corporation and taxable to the stockholder.