Essential Facts That You Have To Know When It Comes To S Corporations
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 those of you who may be wondering what the S in the S corporation might mean, well, that refers 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. 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. As a matter of fact, there are many businesses out there that favored S Corporation over C Corporation for the very reason that the former only has single taxation and limited liability protection, something that is beneficial for those who have charging order protection 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. 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.
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. Moreover, when you become an S Corporation owner, you will receive a distinct and court-recognized existence that will help protect you from possible personal liability that may cause you to lose you personal wealth in assets like your car, nest egg or even your home. Not only that, we want you to know that being an S Corporation owner will allow you to enjoy flow-through taxation wherein profits are distributed evenly to shareholders who are taxed on profits 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.