If you’re thinking about forming an S-Corporation, you might be wondering about the benefits of the business entity and how this type of organization differs from a standard corporation. Many new business owners seriously consider forming an S-Corp, due to the tax advantages and personal liability protection that this structure offers.
An S-Corporation, commonly called an S-Corp, is a business entity that is incorporated and has registered for additional S-Corporation status. Typically, a for-profit corporation (C-Corporation) pays federal income tax at the corporate level and then shareholders of the C-Corp pay federal income tax on the shares they receive. This is known as double taxation.
With an S-Corporation, shareholders can avoid double taxation. Taxes for an S-Corp are not levied on the corporate structure; rather they’re “passed through” and reported on shareholders’ personal income tax returns. As a comparison, keep in mind that partnerships, LLCs, and sole proprietorships also receive pass-through taxation.
The “S” attached to a corporation stands for “small business.” Corporations with fewer than 100 owners are considered small businesses, and they may elect to register for S-Corp status.
Along with avoiding double taxation, an S-Corporation provides many benefits to business owners. S-Corps, like standard C-Corps, give business owners personal liability protection from business-related lawsuits. If a vendor or disgruntled customer sues an S-Corporation, the business owners’ homes and other assets are protected and may not be sought after as part of a lawsuit.
There are several criteria that business owners must meet in order to be recognized as an S-Corporation. First of all, the business owners must have already incorporated and received federal tax IDs. In addition, S-Corp owners must meet a series of tests.
The process of forming an S-Corp involves many steps, and some people find the journey to S-Corporation status a complicated one. Irs-ein-tax-id.com offers assistance in filing for an S-Corp and filling out paperwork to obtain a federal tax ID. We help our clients make sure they meet all requirements to file as an S-Corp, which includes determining if shareholders are qualified to be part of an S-Corporation.