Why S Corporation
If you want to start a new business, it is vital that you decide on the business structure. Choosing the S Corporation can ensure your future success.
You see, there are many advantages and benefits that you can enjoy from this structure. Inquire ahead of time to comply with the rules or regulations of your state.
S Corporation Definition
Once you decide for corporation as your business structure, there is a need to choose between LLC (Limited Liability Corporation) and S Corporation. So, why should you opt for S Corporation? Similar to the C Corporation, there is a need to file your incorporation documents. Within 75 days after the incorporation, you should file for the S Corporation through the Form 2553 that you can secure from the IRS. The corporation’s type is not affected but only its tax structure. Shareholders are taxed separately from the business entity. This means that the income is passed to shareholders and they will in turn report their income and losses as shown on the tax returns.
The S Corporation will still file Form 1120S as required by the state. Since the laws may vary from one state or country to another, you will have to double check to ensure that you are complying with the requirements. This is vital to avoid potential problems with the government or IRS. There are many reasons why you need to choose S Corporation. The losses are passed to shareholders and since the owner is a shareholder as well, such loss can be taken against the income and this will appear on the personal return.
You no longer have to pay for corporate taxes since you can take advantage of the limited personal liability. Aside from that, you can also minimize the FICA and self employment tax. It can be hard to start a business when you’re alone or even when you have partners. In the case of corporations, you can easily raise the needed capital. To ensure a smooth flow from startup to running the corporation, you must comply with the regulations of your state.
Some of the rules that you need to observe include the following – shareholders should be US citizens and vote for the S corporation structure, and those with at least 2% partnership can take advantage of accident or health insurance which will not be deducted. If you want to give shareholders their dividends on a regular basis, the S Corporation is the ideal choice. Make sure that you keep separate financial records for the corporation and your personal expenses. That way, you can easily monitor the income and expenses. Now that you know the advantages of starting an S Corporation, you can now inquire at the concerned offices to determine the rules and regulations. By doing so, startup will be very easy and you can ensure future success.
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