Introduction To S Corporations – What You Need To Know About It
There are several essential facts regarding S Corporations that you should be aware of and one of which is the fact that this term refers to corporations that have been elected to be taxed as a flow-through entity, something that is similar to LLC or Limited Partnership. For the information of many, the S in the S corporation refers to an IRS code section. The S election is a type of taxation or IRS code section wherein the shareholders are allowed to be taxed only at the individual level instead of being taxed at the individual and corporate level, thus avoiding double taxation such as that of C Corporation. In addition to that, since S Corporation is for corporate level, they will not be required to pay for federal income tax, which is the opposite of the C Corporation since here, they have to pay both the individual level and corporate level, thus, earning them 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.
There are other things that you have to be aware of regarding S Corporation such as the fact that it has specific restrictions regarding 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. There are several entities that are not allowed to avail S Corporation like non-US residents, corporations as well as multi-member LLCs. 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.
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. 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. 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.