What an S Corp? How It Could Save You Money on Taxes?

Business: An S corporation (S Corp) is a type of business structure that offers the benefits of both a corporation and a partnership. Like a corporation, an S Corp provides limited liability protection for its owners, who are called shareholders.

This means that shareholders' personal assets are generally shielded from liability for the debts and obligations of the corporation.

However, unlike a traditional C corporation, an S Corp avoids double taxation. A C corporation pays income tax on its profits, and then shareholders pay taxes again on any dividends they receive from the corporation. An S Corp, on the other hand, is a pass-through entity.

This means that the corporation's profits or losses pass through to shareholders' personal tax returns, where they are taxed at the individual income tax rate.

Limited liability protection: Shareholders' personal assets are generally protected from the debts and liabilities of the corporation.

Pass-through taxation: S corporations avoid double taxation by passing corporate profits or losses through to shareholders' personal tax returns.

Flexible profit distribution: S corporations can distribute profits to shareholders in proportion to their ownership stake, or they can pay shareholders a reasonable salary.

Shareholder restrictions: S corporations can only have 100 or fewer shareholders, and all shareholders must be U.S. citizens or permanent residents.

Increased paperwork: S corporations are subject to more complex tax filing requirements than sole proprietorships or partnerships.

Salary requirements: S Corp shareholders who also work for the corporation must be paid a reasonable salary.

If you are considering forming an S corporation, it is important to consult with a tax advisor to determine if this is the right business structure for you.