What the Heck is an S Corporation?
Business owners may have heard the term “S Corporation” or be an S Corporation, but do not really understand what it means and how it affects their business. So, what the heck is an s corp? A corporation or an LLC can elect to be treated as an S Corporation for federal tax purposes. By doing so, they can potentially save the business and its owner’s significant amounts of money in federal taxes.
Electing how to be taxed
In addition, if a corporation does not elect to be treated as an S Corporation, it will default to be taxed as a C Corporation. C Corporations experience “double taxation” and the income to the corporation is taxed twice. However, electing to be treated as an S Corporation, causes the income and losses to the corporation to be passed to the shareholders. Once that happens, the corporation is only taxed once. The same can be said for a LLC that doesn’t elect to be taxed as an S corporation. When that happens, the LLC will default to being taxed as a disregarded entity. With that, all of the income to the LLC will be taxed at the business owner’s (or owners’) personal tax rate including self-employment tax. If you’re already in the top tax bracket, that means you could be inching near a 50% tax rate. That’s a lot!
Here at 180 Law Co, we have your back!
In this episode of all All Up In Yo Business, find out what the heck is an S corp, how it’s taxed and how to become one.
Want to learn more about S corps? Check out more info on them here.