Why S Corporations are More Advantageous than Other Types of Corporations
Fact: Sixty two percent (62%) of corporate entities in the United States of America are S Corporations. An S Corporation is famous among entrepreneurs who wish to start a business and are interested in paying minimal tax.
What could be the possible reasons why S corporation is preferred among other company entities? One reason is the pass-through of losses. In an S corporation, corporate losses can be passed through to the shareholders. The corporate holders can then claim a deduction from their other taxable income.
Another reason and probably the most significant advantage is the limited liability. Shareholders are able to enjoy limited liability as a corporate shareholder but pays income taxes as if the owner is a sole proprietor or a partner. They get to pay smaller taxes as well.
Also, in an S corporation, shareholders are not required to pay FICA tax (taxes that are paid by employees otherwise known as employment tax). The shareholder only needs to pay tax for their salary because their profits are not taxed. They may also minimize the tax they are paying by declaring part of their salary as profits in order that it will not be taxed.
Lastly, in a regular corporation, the owners pay individual income tax only on money they receive from the corporation, either as salary, bonuses, etc. But in an S corporation, the tax being paid is through the shareholders, who then reports business profits in their personal tax returns.
Now, are you still wondering why S corporation is the leading corporate entity in the USA?
