Small business owners: You need to consider setting up an S-Corp LLC for your business.

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29 Jul Small business owners: You need to consider setting up an S-Corp LLC for your business.

What is an S corporation?

An S corporation is a corporation that is treated, for federal tax purposes, as a pass-through entity through an election made with the Internal Revenue Service (IRS) to be considered an S Corporation.

What does that mean?

As a corporation, an S corporation is created through filing Articles of Incorporation with the Secretary of State or similar government body. It issues stock and is governed as a corporation. The owners, who are called shareholders, have the same protection from liability as shareholders of a C corporation. An S corporation shareholder’s personal assets, such as personal bank accounts, cannot be seized to satisfy business liabilities.

However, like a sole proprietorship or a partnership, an S corporation passes through most of its income and loss items to the shareholders. Unlike a regular corporation, there is no “double taxation,” once at the corporate level and again on the individual shareholder level.  Each shareholder is subject to his or her own individual tax rate on the income (or losses) passed through to him or her.

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