What is a S Corp?

What is a S Corp, and how does it differ from other types of corporate structures?

A S corporation (S corp) is a legal business entity that is taxed as a partnership rather than separately from its owners. This gives the entity the benefits of a corporation without the risk of double taxation on income, such as with a C corporation. Only U.S. entities with 100 or fewer shareholders can be structured as S corps, so these are commonly used by smaller entities that wish to gain the benefits of incorporation without the burden of corporate tax. Income is passed through from the corporation (often called a “pass-through entity”) to its shareholders (usually individuals), who then report this information on their personal tax returns. Because S corps create credibility and commitment with clients and prospects, without the regulation of a C corp, they are a popular choice for many entities. S corps don’t have to pay corporate tax like a C corp, and they can still deduct expenses from their taxes. Because any corporate profits and losses are passed through to the personal tax return of its shareholders, however, it’s worth careful consultation with an accountant and lawyer before making a final decision.

 

NEXTSTEPS | 1.16.21

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