S Corporation

S Corp or S Corporation has some specific differences from a Corporation. Like, S Corps holds eligibility to bypass taxation status with the IRS, which helps you to sidestep from double taxation on your business income. By filling form 2553 with the IRS, S Corp must request a bypass from taxation status.

It is a simpler version of C corp. It offers opportunities for investment, perpetual existence, and facilitates limited liability. But when compared to C Corp there is a huge advantage of taxation. You may observe in the points below.

Why go for an S Corporation?

Limited liability

Facilitation of limited liability protection is applicable for Officers, Company directors, shareholders, and employees.

Pass-through taxation

The profit and loss report is shared with individual tax returns by owners

Double taxation

Double taxation on income is eliminated. Once as dividend income and once as corporate income.

Investment opportunities

The company can invite investors via the sale of shares of stock.

Perpetual existence

Even if the owner exits the corp or dies

Annual Tax filing

No need to file taxes quarterly, once a year is perfect for S Corp

Advantages

The potential benefit of registering as an S corporation is that it assists in establishing reliability with potential customers, employees, suppliers, and investors by showing the owner’s formal commitment to the company. In addition, the S corporation does not pay federal taxes at the entity level. It benefits by saving money on corporate taxes especially when a business is established. Other benefits include the ability to adjust property basis, the transfer of interests in an S corporation without facing adverse tax consequences, and complying with complex accounting rules.

At times, if the distribution does not exceed its stock basis, shareholders can be company employees, in addition to earning salaries and receiving corporate dividends that are tax-free. The excess amount is taxed as a capital gain. Portraying distributions as salary or dividends assists the owner to reduce the liability for self-employment tax whilst generating business-expense and wages-paid deductions.

Start Your Business for $50 + State Fee