For business owners or those thinking of starting a business, incorporating as an S corporation is an option many consider. It offers benefits that sole proprietorships, general partnerships, and LLCs do not have. When you incorporate as an S corporation, your business becomes a separate legal entity from yourself, meaning your assets are protected from liability for the debts and obligations of the company.
If you’re considering an S Corp and setting up your business, trusted experts in the field are here to help. In the following article, we’ll look closely at what S Corps brings to the table. Read on!
What is an S corporation?
An S corporation is a special type of business entity that offers its owners certain tax advantages. If you’re thinking of forming an S corporation, there are a few things you should keep in mind.
S corporations have many advantages over other business entities. One notable advantage is that an S corporation’s income is only taxed once, at the shareholder level. This can save shareholders money on their taxes, as they don’t have to pay corporate income tax on the company’s profits.
To qualify as an S corporation, a company must meet several requirements:
- It must be a domestic corporation or LLC.
- It must have only one class of stock.
- It must have no more than 100 shareholders.
If your company meets these requirements and you want to take advantage of the S corporation tax status, you’ll need to file Form 2553 with the IRS. Once approved, your company will be taxed as an S corporation going forward.
How does S corporation help avoid double taxation?
The S corporation is a unique business entity in the United States that offers its owners certain tax advantages. One of the key benefits of an S corporation is that it helps avoid double taxation.
Double taxation can occur when a business is taxed twice on the same income. For example, this can happen if the company is taxed as a C corporation, and then the shareholders are also taxed on their dividends. However, with an S corporation, the income is only taxed once at the shareholder level. This can be a significant advantage for small businesses and entrepreneurs looking to minimize their tax liability.
To avoid double taxation, an S corporation can file a special election, called an “S election,” with the IRS. In this manner, the company no longer pays taxes on the profits, and all profits and losses are passed to the stockholders, who then report their share of the profit/loss on their personal tax returns.
Who can I trust with all-encompassing S Corp setting up help?
If you’re thinking of starting a small business or incorporating your existing business, it’s worth considering whether S corporation status is suitable for you. David York’s Tax Service can help determine if this option makes sense for your situation.
We’ll assist you with the necessary tax preparation and paperwork for S Corporations so that you keep your focus on successfully strategizing for your business in San Diego County and the region. Schedule your consultation today!