Forget all the bad news that’s out there. There has never been a better time to start a business! But before you do, you should consider how to set up your business. For many individuals, an S corporation is the smart move.
An S corporation is an excellent option for individuals and small businesses because it offers many tax advantages over other types of corporations. For example, profits and losses from the company are passed through to the shareholders (you), who then report them on their tax returns. This can be a significant advantage when it comes time to pay taxes because it can help reduce your overall tax bill. In addition, S corporations are not subject to the self-employment tax, which can be pretty costly for sole proprietorships and partnerships.
This can be advantageous for small business owners who want to avoid paying higher taxes on their business income.
Why an S Corporation over a C Corporation?
The main advantage of an S corporation over a C corporation is that the owners of an S corporation can avoid paying double taxes on their business income. First, the business is taxed on its net income with a C corporation. Then, when the shareholders receive dividends from the company, they are taxed again on that income.
The business income is only taxed once at the shareholder level with an S corporation. The shareholders then report their share of the company’s income on their tax returns and pay taxes at their individual tax rates.
This can result in a lower overall tax bill for the business owners.
Another advantage of an S corporation is that it can help businesses save on payroll taxes. In addition, businesses with S corporation status can elect to have their income taxed as personal income rather than corporate income.
Another advantage of an S corporation is that it offers protection from personal liability. Shareholders are not personally liable for the debts and obligations of the corporation. This can be important if your business is at risk of being sued or going into debt.
How to Set Up an S Corporation
To set up your business as an S corporation, you must file a particular tax return with the IRS. You will also need to designate your business as an S corporation in your state of incorporation.
To do this, you must file Articles of Incorporation with your state’s Secretary of State’s office. In your Articles of Incorporation, you must include a statement that your business elects to be taxed as an S corporation.
If you have any questions about setting up an S corporation, you should consult with an accountant or tax attorney. They can help you determine whether setting up your business as an S corporation is right for you and guide you through the process of filing the necessary paperwork.