So What is S-Corp?
Corporations divide into two different categories. There is S-corp and there is C-corp. S-corp was additionally known as a small business corporation. It has a few tax benefits that are very appealing to the individual owner. S-Corporation also presents protection for its owners against the liability damages and lawsuits.
S-corp is sort of a stripped down model of the c-corp. It gives investment possibilities, non-stop existence, and protection against liabilities. But unlike a c-corp, s-corp has tax benefits, and the owner does not suffer double taxation.
S-corp was created first in 1958 to assist and inspire individuals to start new businesses.
What are advantages of S-corporation?
Limited liabilities: directors, shareholders, and S-corp’s employee experience the safety of limited legal responsibility.
No double taxation: Owner of S-corp file their taxes when they file their individual tax return at the end of the year. With this benefit, there is no more double taxation. This means your S-corporation are not going to be taxed on S-corp level.
Investment possibilities: The company can attract investors via the sale of stocks.
Limitless life: The S-corporation remain in existence after the death of the owner.
Annual taxes only: S-corp only file taxes once every year. This is a top difference between C-corp which must file taxes every 3 months.
Downside of starting S-corporation
Only for Green Card Holders and U.S. Citizens: in contrast to the c-corp and limited liability company, you must be a permanent resident or a citizen of the United States.
Formation and operational costs: s-corp could be very pricey to start and preserve. You must pay an accountant to start your S-corporation and the tax preparation of S-corporation can be costly.
Tax obligations: Mistakes and errors can cause the termination of your S-corp license.
IRS scrutiny: Payments that are made to the Employees can be considered wage as well as the dividend. If everybody is taxed differently, IRS will take a closer look at the taxes.
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