As you begin to plan for the future of your company, there will come a point when you need to decide on a business structure. With several options to choose from, it can be a challenge to settle on the right one.
For many entrepreneurs, a S corporation is the answer to all their problems. While similar to a C corporation in some ways, there is one primary difference: The profits and losses of the business can pass through to the owner's personal tax return. As a result, the business itself is not actually taxed.
Here are some of the primary advantages of a S corporation:
-- Tax savings. Everyone wants to save money on taxes, and that's exactly what you get when you opt for an S corporation. With an LLC, for example, all the net income of the company is subject to employment tax. With an S corporation, only your wages are subject to employment tax. Anything that is leftover is paid as a distribution, which is associated with a lower tax rate.
-- Easy to setup. It may not be as simple to setup as an LLC, but it's easier than a C corporation.
-- Separate from shareholders. With an S corporation, you can keep your business separate from shareholder activity.
There is no way of knowing which type of business structure is best until you compare the pros and cons of each one. Once you better understand an S corporation, including the benefits and how to set one up, you may find that it's just what you've been looking for.
Source: SBA, "S Corporation," accessed April 03, 2017