Introduction To S Corporations – What You Need To Know About It
When we say S Corporation, we are actually referring to a corporation that has been elected to be taxed as a flow-through entity, similar to LLC or Limited Partnership. If you are wondering what the letter S stands for, well, it is a reference 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. In the event that the restrictions we mentioned above are not met, the IRS will decide to refer the corporation to C Corporation and double tax them accordingly.
We want you to know that if you choose S Corporation, you are bound to receive the following benefits: excellent income-splitting potential for owners/employees, unlimited number of management, no state residency requirements and also, limited liability for shareholders and management alike. Furthermore, know that when you become an S Corporation owner, you will get a court-recognized, distinct existence that will help protect you from personal liability which may cause you to lose your wealth in the form of assets such as your nest egg, your home or even your car. That’s not the only thing you have to know regarding the benefits of S Corporation as there are more like allowing you to enjoy flow-through taxation in which your profits are distributed evenly to shareholders who are taxed as well on earnings at their level. As an S Corporation owner, you are bound to enjoy excellent privacy protection. 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.