S corps are corporations that have elected a special tax status with the IRS.
S corporations provide the same limited liability to owners (called shareholders) meaning that owners typically are not personally responsible for business debt and liabilities; however, S corporations have pass-through taxation. S corps do not pay tax at the business level, they file an informational tax return but business income/loss is reported on the owners’ personal tax returns, and any tax due is paid at the individual level.
LET US HELP YOU UNDERSTAND WHY CHOOSE S CORP:
- When a S corporation’s owner incurs a disabling illness or dies, the corporation does not cease to exist.
- Ownership is easily transferable through the sale of stock.
- Selling shares of stock can raise additional capital.
- S Corps may be perceived as a more professional/legitimate entity than a sole proprietorship or general partnership.
- Owners are not typically responsible for S corporation business debts and liabilities
- Corporation tax status avoids the “double-taxation” associated with C Corps and instead provides S corps owners with pass-through taxation benefits.
- Under IRS S corps taxation rules, profits, losses and other pass through items are allocated based on each shareholder’s proportionate shares of stock.
- Income and losses of S corps are passed through to shareholders, similar to the way income and losses of partnerships are passed through to partners. An S corps can offer self-employment tax savings, since owners who work for the business are classified as employees.
- Generally S corps is audited less frequently than sole proprietorships.
- Business expenses may be tax-deductible.
As Per IRS guidelines, S corporation owners (shareholders) must meet the following criteria:
- Number 100 or less.
- Must be US citizens/residents (cannot be non-residents)
- Cannot be C corporations, other S corporations, limited liability companies (LLCs), partnerships or certain trusts.
Other IRS restrictions, apart from ownership restrictions, also apply to S corporations. For example, there can be only one class of stock (but differences in voting rights are permissible) and the corporation must be a domestic corporation.
An S-corporation also has the same documentation and compliance obligations. S-corps need to file their articles of incorporation, and also need to issue stock, pay certain fees, hold shareholder and director meetings, etc.
USATAXX build a bridge between YOU and IRS. You’ll also get timely notification of any issues that need to be addressed. We are a one stop shop for all your business needs. We’ll take care of everything under one roof and actively provide you with timely reports with the information you need to make the best decisions for your company.