What tax treatment option can shareholders of certain S corporations choose?

Shareholders of certain S corporations have the option to be treated like a partnership for tax purposes, which is significant for a couple of reasons. This treatment allows income, deductions, and credits of the S corporation to pass through directly to the shareholders' individual tax returns. As a result, shareholders are taxed at their individual income tax rates rather than facing corporate income tax levels. This pass-through taxation mechanism is designed to avoid the "double taxation" that C corporations experience, where corporate profits are taxed at the corporate level and again at the individual level when distributed as dividends.

This option is particularly attractive for small businesses and those who prefer to avoid the complexities and potential tax burdens associated with the C corporation structure. It also maintains the limited liability protection of corporate ownership while simplifying tax reporting for the individual shareholders. Overall, being treated like a partnership allows for a more favorable tax treatment for many small business owners operating as S corporations.