If you have a business of your own then there is a good chance you are familiar with the different types of businesses out there. This includes S Corporations, also referred to as S-Corps. You may have heard in passing, or even when speaking to a tax agent that there are added financial benefits that come with forming an S-Corp for your business. While there is a chance transferring your company into an S-Corporation may be beneficial for you and your company, it is still important to familiarize yourself with the specific difference you will face when making such a significant change with your company.
What is an S Corporation?
S Corporations are most common with smaller and medium sized businesses. Commonly, it is mistaken that the “S” in “S Corporation,” is shorthand for “Small Business.” However, this is not the case. The “S” actually is referring to Subchapter S of Chapter 1 of the Internal Revenue Code.
When boiled down to its most simplistic terms, an S Corporation, at its core, is a C Corporation with pass-through taxation, with some added unique limitations. Much like with a sole proprietorship or a partnership, the profits and losses of an S Corporation will pass through directly to the owner of the business. This means the S Corporation is not, in itself, responsible for the income tax. While all the above rings true for many other pass-through entities, including sole proprietorships, partnerships, and certain LLCs- S Corporations have one big advantage that other pass-through entities do not have. S Corporations can provide self-employment tax savings that can really add up for business owners. This is one of the main reasons we see business owners choosing to form an S Corporation for their business. Whenever you are the owner of a sole proprietorship, partnership, or even an LLC, you legally are unable to be employed by your own company- at least in the traditional sense of the word.
When examined closely, it can become quickly apparent for businesses that an S Corporation is the more cost efficient way to file their business. This is why it can be such an appealing offer for small to medium business, especially for companies that have more than one owner.
If you are interested in learning about the benefits of filing as an S Corporation with your current company, contact King Financial Services today. We can help you determine the best way to file your business taxes, to get you the most savings and the least amount of hassle. Whether your business is brand new or has been in operation for several years, we can help you make the necessary changes to get you the results you are looking for before next tax season. Do not wait until the last minute, contact us today.
Sandra King Enrolled Agent
Sandra King is an enrolled agent, empowered by The United States Treasury to prepare your personal or business tax filing. While her services are offered nationwide, Sandra King locally serves the greater Dallas-Fort Worth area, including but not limited to Arlington, Bedford, Colleyville, Euless, Fort Worth, Grand Prairie, Hurst, Mansfield, North Richland Hills, and Richland Hills.