Essential Facts That You Have To Know When It Comes To S Corporations
Speaking of S Corporation, this is a term that is commonly used to pertain to a corporation that has been elected to be taxed as a flow-through entity, the same with LLC or Limited Partnership. For those of you who may be wondering what the S in the S corporation might mean, well, that refers to an IRS code section. That code section or taxation is called as the S election and it allows the shareholders to be taxed only at the individual level rather than at both the corporate and personal level, hence, avoiding any potential double taxation such as the C Corporation. And also, we want you to know that there is no federal income tax levied at the corporate level, different from the C Corporation since it is taxed at both the corporate level as well as the individual level, earning the description of double taxation. The truth of the matter is that many businesses out there have favored S Corporation over C Corporation because of how the former is only taxed single taxation, plus, they have limited liability protection which is suitable for those who are charged with order protection that is extended to corporate shares.
Another thing about S Corporation that we want you to know of is that it has certain restrictions to ownership. Among the restrictions that S Corporation has when it comes to ownership has something to do with the number of owners being one hundred or fewer and all of them must be their living trusts or individuals. Multi-member LLCs, non-US residents as well as Corporations are some of the entities that cannot be S Corporation owners. Once the restrictions we stated above are not met by the corporation, they will be referred by IRS as C Corporation and double tax them accordingly.
Bear in mind all the time that choosing S Corporation will give you the following advantages: limited responsibility for both shareholders and management, a excellent income-splitting potential for owners/employees as well as unlimited number of no state residency and management requirements. Moreover, when you become an S Corporation owner, you will receive a distinct and court-recognized existence that will help protect you from possible personal liability that may cause you to lose you personal wealth in assets like your car, nest egg or even your home. Not only that, we want you to know that being an S Corporation owner will allow you to enjoy flow-through taxation wherein profits are distributed evenly to shareholders who are taxed on profits at their level. Good privacy protection is among the good things that come from becoming an S Corporation owner. By becoming an owner of S Corporation, you can not only take pay income taxes and regular payroll deductions, but you can also take a smaller salary while having the rest of the profit a subject of distribution for income tax only.