Expert Advice When You Need It Most

What is an "S" Corporation?

Written by: Jon Mitchell Jackson

Reputation Level 14

Posted over 3 years ago. Applies to California, 2 helpful votes, 1 comment

Save

Share with:

More about "S" Corporations

A subchapter "S" Corporation, also called an S Corporation, is a corporation that once incorporated, elects a special tax status. The Subchapter S tax election enables the shareholders to pass through earnings and profits directly to their personal tax return. If the corporation has a profit, the shareholder, if working for the company, must pay themselves wages that meet the standards of "reasonable compensation."

What Are the Main Advantages of Forming an “S” Corporation?

An S Corporation is said to have less risk from government audits as a corporation (as opposed to sole proprietor or LLC); Owners of an S Corporation have limited personal liability for business debts; With an S Corporation, owners can use corporate losses to offset income from other states; Owners of an S Corporation can save on employment taxes by taking distributions instead of salary; Owners of an S Corporation can save on employment taxes by taking distributions instead of salary; With an S Corporation, there is no double taxation threat because the corporation is not a separate taxable entity.