The elective provision that allow small business corporation and their shareholders to get some special tax deduction is known as S Corporation. The main benefit of the S corporation is you can avoid the corporate income tax and also the share holders can claim the corporate losses. You can also avoid double taxation if you elect taxation under Subchapter S of the Internal Revenue Code.
There are some mandatory rules for S Corporation which are stated below
- Maximum 75 shareholders can be there in a S corporation. Some special entities and individuals are allowed o become shareholders.
- Only US citizens can be shareholders of S corporations.
- S corporations are allowed to have only one class of stock which is free from federal income tax and some other taxes.
The S Corporation is formed like any other corporation just by filing the articles of incorporation with the state level. For example: For Florida S Corporation you have to file articles of incorporation with the state level i. e. Florida Department of State. Next is the Internal Revenue Service where you have to submit the IRS form 2553. Taxation is done on sole proprietorship or partnership basis than the separate entity. In S corporation the deduction in taxes is done by passing the income to the share holders by “passed-through" method. So naturally the individual tax return of the shareholders will determine the gain or loss by the S corporation.
The S corporation also provides the employee benefits deferred compensation plans. The stocks are transferable. The shareholders will get the free exchangeability of interest i. e. the shareholders can sell their interest without the permission of the other shareholders. S corporation is always beneficial in terms of self-employment taxes. Owners Social Security/Medicare taxes or self-employment taxes can be saved with the help of S Corporation.
IRS treats the income and the corporate losses for S corporation differently. So automatically the business owners who want limited liability, pass-through tax treatment and different IRS treatment will choose the S Corporation status.
In S corporation the share holders are employed within the corporation. So the shareholders manage the corporation's daily activities and at the end of every year income get distributed.
It is always advisable to take help of the financial advisor who can be the best judge for you to determine whether S corporation will be suitable for your business or not. IF your plan is to draw a less salary from the company and leave the corporate earnings in the corporation for reinvestment then S corporation is not a right choice for you.
In Florida beside this S corporation another famous corporation is very famous and it is LLC in Florida or in short LLC Florida. Many people get confused in choosing between Florida S Corporation and LLC Florida. Both has its own advantages and disadvantages but the basic structure or format is same for each of them.
LLC gives the best legal support and has the good active trade while the S Corporation is easy to handle and it brings down the income tax drastically which is often not possible in LLC.
If you are confused on what to choose between S Corporation and LLC ten it's better if you consult your legal adviser.
Learn the benefits to creating your company as an LLC Florida . Find out how much more money you can earn by creating an incorporate business Florida .