For those deciding to start a corporation, there are many things to consider. To begin, a business plan should be put in place. However, a more important issue to address is what type of business to form. There are various business types, but usually, there is only one or two that may work best for one’s business. One thing to put in the forefront of one’s thought process is liability and taxes.
When taking these two factors into consideration, those seeking to start a corporation may want to consider an S-corporation and the benefits it may offer them. When compared to a C-corporations, there are many advantages of an S-corp one should consider.
To begin, there is just a single level of taxation with an S-corp. This means that the corporation is subjected to just one level of tax, or, in other words, the income is only taxed to the shareholders. In contrast, a C-corp pays tax on its earnings while the shareholders pay a second tax when the corporate earnings are dispersed to them.
Another benefits is the ability to deduct the operating losses of the corporation on their individual tax returns. On the other hand, a C-corp may only offset the losses of the corporation. A final advantage of an S-corporation is income splitting. This means that income from the corporation may be split among family members through gifts or by selling stock.
Whether you are in the very beginning process of starting a business or going through the final touches, it is important to gain a full perspective of your situation. This means understanding what liabilities you could face, what benefits you could enjoy and the tax liabilities that occur with each business type. Gaining information and legal assistance could help business and company owners take the steps necessary to protect not only their company but also their personal interests as well.