S Corporation (S Subchapter)
“S Corporation” means a “small business corporation” which is taxable under section 1362(a) as an S Corporation. These are ordinary business corporations that elects to pass corporate income, losses, deductions and credits to their shareholders for tax purposes.
In general S Corps is not liable to pay any income tax, because it transfers the amount of income or loss among its shareholders. The shareholders are required to report/file their income or loss on their individual income tax returns.
S Corps provide the same limited liability to the owners, i.e. the shareholders, which meansthat owners are not personally liable for business accounting; however, S Corporations go-through taxation. But S Corps do not pay tax at the business level, they file an informational tax return. The business income/loss is reported on the owners’ personal tax returns, and they are liable to tax if there is any due.
LET US HELP YOU UNDERSTAND WHY CHOOSE S CORP
- S Corporations are great for start-ups and service providers such as consultants, as the businesses need not make major equipment purchases before beginning operations.
- The management and shareholders are liable to limited
- An unlimited number of management personnel, no state residency requirements.
- Distinct, court-recognised existence, which helps protect you from personal liability, which may does not lead to loose your assets and personal wealth.
- Generally S Corps is audited less frequently than sole proprietorships
- Taxation policy: Profits are allocated to the shareholders, who are taxed on profits after allocation at their personal level.
- Facilitates easy transfer of ownership through the sale of stock.
- Additional capital can be acquired by issuing shares.
- S Corps may be considered as well founded entity than a sole proprietorship or general partnership.
- S Corporation owners pass-through taxation benefits to avoid double-taxation in Corporation tax.
- An S Corp does not cease to exist on the death of the owners.
- Under IRS S Corps taxation rules, the profits, losses of S Corp are allocated to each shareholder based on their proportionate shares of stock.
- Income and losses of S Corps are passed through to shareholders, like the way income and losses of partnerships are passed through to partners. The owners of S Corporation are treated as employees, hence it offers self-employment tax savings.
- The expenditure incurred in business is eligible for tax deduction.
As Per IRS guidelines, S Corporation is “eligible” if it:
- The shareholders does not exceed100
- It has to be domestic business entity.
- S Corporation shareholders must be US Citizens or legal residents of the United States.
- Only one class of shares should be maintained
IRS Form 2553 to be filled and submitted, to form an S Corp,- Election by a Small Business Corporation signed by all the shareholders. An S-corporation also has the same documentation and compliance obligations. The company is required to file articles of association, andneed to issue stock, pay certain fees, conduct shareholder and director meetings, etc.
USATAXX is a bridge between YOU and IRS. We will take care of everything with accuracy, transparency, reliability and security, under one roof. You’ll also get timely notification of any issues that need to be addressed. We will also actively provide you with timely reports with the information you need to make the best decisions for your company.