Why would you choose an S Corporation?
First, what is S Corporation (Small Corporation ) for tax purpose?
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level. (By the definition of IRS.)
Who can become a S-Corporation?
To qualify for S corporation status, the corporation must meet the following requirements:
- Be a domestic corporation
- Have only allowable shareholders
- May be individuals, certain trusts, and estates and
- May not be partnerships, corporations or non-resident alien shareholders
- Have no more than 100 shareholders
- Have only one class of stock
- Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
LLC vs. S-Corporation. What is the difference?
- A Limited Liability Company (LLC) is an entity created by state statute. the IRS will treat an LLC either as a corporation, partnership, or as part of the owner’s tax return (a disregarded entity), depending on elections made by the LLC and the number of members,. A domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it elects to be treated as a corporation. An LLC with only one member is treated as an entity disregarded as separate from its owner, unless it elects to be treated as a corporation for income tax purposes,. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity.
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