Why Do You Want To Be An S-Corp?

If you are a self-employed entrepreneur, you may be considering becoming an S corporation. S-Corps enjoy pass-through taxation, meaning that their profits are not taxed twice. However, this advantage isn’t as simple as it sounds. In order to take full advantage of these advantages, your business must first properly run payroll and accurately report profits and losses on tax returns.

S Corporations are pass-through entities, which means that they don’t pay federal corporate taxes and instead pass their profits and losses through to their shareholders. Shareholders then report this information on their personal income tax returns. S Corporations also allow owners to take a 20% qualified business income deduction, which can be an important tax break. In addition, owners can use their S Corp earnings to cover a variety of costs, such as health insurance or home office expenses.

S-corps are generally managed by a board of directors, which oversees corporate formalities and major decisions. They can also impose discipline on rogue employees and veto business decisions that may harm the company. In addition, they can issue stock, allowing them to attract investors who are willing to pay for shares of the corporation. As such, an S-corp can effectively serve as a legal structure that offers the tax advantages of partnerships and the limited liability protections of corporations.

One of the biggest advantages of being an S-Corp is its ability to raise capital. This is especially important when you’re a small business owner looking to expand your operations. The IRS has made it easier for companies to grow by requiring only that they comply with a number of guidelines. These include having no more than 100 shareholders and ensuring that each shareholder is a bona fide resident of the United States.

In addition to the tax advantages, S corps offer businesses several legal protections. One is personal liability protection. S corporations are legally distinct from their shareholders, so if the business goes belly up, they cannot access their personal assets. This helps prevent creditors from claiming them for debts. This is a big draw for many small businesses.

Proper accounting practices are among the most important parts of managing your business. No matter if you’re a small business or a nonprofit, you need a CPA who is knowledgeable about the industry. At Priscilla A Chesler CPA PC, we are a full-service accounting firm that strives to provide personalized solutions for your business or nonprofit. Contact us today and let us be the accounting solution that fits your particular needs.