If you’re one of the over 3 million business owners who operate as a one-shareholder S corporation,1 you likely do so to save on Social Security and Medicare taxes.2

The S corporation has another nifty advantage most people don’t know about: it can form a subsidiary corporation and elect to have it treated as a qualified subchapter S subsidiary—also known as a QSub.

Disregarded

A QSub is disregarded for federal income tax purposes.

Here’s what disregarded means: As far as the IRS is concerned, the parent S corporation and the QSub are a single taxpayer. The QSub’s assets, liabilities, income, deductions, and credits are all treated for tax purposes as if they are owned by the parent S corporation.3

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