Learn About S Corporations
Many potential business owners find themselves researching about S corporations, to see if incorporating their businesses as S corporations is the right way to go about things. It is important to note that you can still incorporate a sole proprietorship or general partnership business into an S corporation after some time. You will find people telling you that incorporating your business into an S corporation is not a worthwhile venture, and is expensive and time-consuming, but do not listen to them because this could not be farther from the truth. When you incorporate your business into an S corporation, you elect to have its income tax paid by shareholders instead of the company. All items of S corporations’ returns are passed to shareholders, meaning that they get to be reported in their individual returns. The shareholders of S corporations do not have to worry about their personal assets being seized in times of bankruptcy because S corporations are held independently.
An S corporation is similar to a sole proprietorship or a partnership in the case of passing incomes and losses to shareholders. S corporation shareholders do not undergo double taxation. If you are a shareholder in an S corporation, you will be held liable for tax based on the incomes or losses passed on to you. Shareholders only pay tax once, that is at the individual level. This article will be looking at some of the common merits of S corporations.
One major benefit of S corporations lies in their laws regarding taxation. There is pass-through taxation in S corporations. S corporations are therefore exempted from paying taxes at the corporate level. Shareholders report the corporation’s incomes or losses on their personal tax returns, and this is a major benefit because they are not taxed twice. Shareholders in S corporations that make losses experience reductions in their tax liabilities since the losses registered by the corporations offset their other incomes. Pass-through taxation is advantageous for start-ups.
There are no complications in the transfer of ownership in S corporations, and this is another major benefit. You can transfer interests without worrying about tax consequences or triggering business termination, unlike is the case with limited liability companies and partnerships. You do not have to worry about dealing with the complex accounting rules every time there is interest transfer.
Lastly, shareholders’ assets are protected in S corporations. You are safe from the liability of the corporation’s debts. What this means is that you are protected from the corporation’s creditors. S corporations give you a sense of independence, that you cannot find in sole proprietorships or general partnerships.