An S Corporation is originally created in the same method as a C Corporation. Once the business is incorporated, the holder may choose to file as an S Corporation, within roughly 75 days of incorporating. The S Corporation has shareholders and is taxed as a split business unit. Proceeds are approved through to the shareholders, who report their pro rata income, or losses, on tax returns. The corporation still files a federal tax return (Form 1120S) and perhaps a state return as well, if required by individual state law. The S Corporation shows profits and losses as they pass through to the shareholders, and the corporation does not pay federal income tax as a separate entity. Some states, however, do tax S Corporations in the same manner as C Corporations.
Advantages of an S Corporation
· Company losses can be accepted through to the shareholders, and as the proprietor (and investor), you may be able to take the loss alongside income that appears on your personal return.
· Security of limited individual responsibility without having to pay corporate taxes.
· You can decrease self-employment tax and FICA tax. Your profits, as an investor, are not taxed in this manner.
· It's easier to increase capital as a corporation than as a sole proprietorship or partnership.
· Stockholders have the bulk control of the business
Disadvantages of an S Corporation
· Plentiful rules and regulations must be upheld by an S Corporation,
· Limited number of shareholders
· Like a C Corporation, it can be expensive to set up and abide by the corporate paperwork.
· Close analysis by the IRS of shareholder-employees,
· IRS shareholder receives compensation before any non-wage distributions.
Limited Liability Company (LLC)
Many business professionals consider LLCs an advanced alternative to corporations and partnerships because LLCs merge numerous advantages of both. With an LLC, the owners can have the corporate accountability security for their...