For entrepreneurs ready to start a corporation, navigating different benefits of different business types can be tricky. Luckily, the Wall Street Journal recently discussed why some businesspeople find S corporations are best.
S corporations provide liability protection while still allowing business profits to pass through the shareholders’ personal tax returns. This means businesspeople are protected from the doubles taxation that C corporation owners incur.
To make the most out of S corporations, the source advises business owners to pay themselves a reasonable salary which is subject to affiliated to payroll taxes. This renders the dividend the owner takes free of employment taxes and it isn’t subject to a corporate tax rate.
As with any formal entity, it’s important to keep careful records in the event of an IRS audit, but proper documentation can mean legal salary savings. The source says the only difference between setting up an S corporation and any other company is the necessary selection of S status on a special IRS form.
This insight might really help new business owners get off to a strong start. The Christian Post says forming an S corporation is a top tax tip for 2010 to bring successful IRS representation. The source says its often tax advantageous even for businesses that are already set up as LLCs or C corporations to consider converting to an S corporation.
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