Final answer:
Eligible shareholders of an S corporation include U.S. residents, grantor trusts, and qualified retirement plan trusts. An individual who is the sole employee and owner of a corporation must pay income tax, self-employment tax, and employer payroll taxes.
Step-by-step explanation:
The question asks about the entities that are eligible to be shareholders in an S corporation. According to the Internal Revenue Service (IRS), the types of entities that can serve as shareholders of an S corporation include a U.S. resident, a grantor trust, and a qualified retirement plan trust, among others. Specifically answering the question:
- A U.S. resident can be a shareholder in an S corporation. The term 'resident' includes U.S. citizens and resident aliens who meet certain tax residency requirements.
- A grantor trust may also hold shares in an S corporation, provided that the grantor is a U.S. citizen or resident and the trust meets certain specific IRS regulations.
- Lastly, a qualified retirement plan trust is eligible to be a shareholder in an S corporation if the plan is tax-exempt under IRS rules and meets other specific requirements.
Furthermore, when an individual owns a corporation where he is the sole employee, he must pay several types of federal tax, including income tax, self-employment tax, and employer payroll taxes such as Social Security and Medicare taxes. These types of taxes ensure compliance with federal tax obligations and contribute to the individual's retirement and healthcare benefits.