What is a Subchapter S Corporation?
A subchapter "S" Corporation, also called an S Corporation, is a corporation that once incorporated, elects a special tax status. The Subchapter S tax election enables the shareholders to pass through earnings and profits directly to their personal tax return.
If the corporation has a profit, the shareholder, if working for the company, must pay themselves wages that meet the standards of "reasonable compensation."
What are the main advantages of forming an S Corporation?
An S Corporation is said to have less risk from government audits as a corporation (as opposed to sole proprietor or LLC)
Owners of an S Corporation have limited personal liability for business debts
With an S Corporation, owners can use corporate losses to offset income from other states
Owners of an S Corporation can save on employment taxes by taking distributions instead of salary
Owners of an S Corporation can save on employment taxes by taking distributions instead of salary
With an S Corporation, there is no double taxation threat because the corporation is not a separate taxable entity
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