Subchapter S Corporation Ryan Stachler, Grant Hollingsworth, Jack Armstrong.

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Presentation transcript:

Subchapter S Corporation Ryan Stachler, Grant Hollingsworth, Jack Armstrong

Definition An S corporation is a corporation that has elected S corporation tax status Elect to pass corporate income, losses, deductions, and credits through to their shareholders for tax purposes Forming an S corporation allows companies to have the limited liability of a shareholder

Advantages Avoid double taxation - only shareholders pay taxes on gains Shareholder limited liability - shareholders are not responsible for accumulation of debts, assets, or lawsuits

Advantages Cont. Easy to raise money - they can issue stock to finance expansions, pay debt or finance other activities Existence - they exist for an unlimited amount of time. The owner can die and it still goes on Once a year tax filing requirement - c corporation must do it four times a year

Disadvantages Extra accounting - The tax return is much more complicated compared to a sole proprietorship because of the numerous shareholders Not eligible for dividend deductions Additional banking procedures/legal costs

Disadvantages Cont. Shareholder ownership restrictions - can only have 100 shareholders and they must be a US citizen Closer IRS scrutiny - Because amounts given to shareholders can be dividends or salary, the IRS makes sure they are being paid for what they do

How to set up 1.Review the requirements and organize your business according to those requirements 2.Must meet the following requirements: be a domestic corporation, have only individual shareholders or certain trusts, no more than 100 shareholders, only one type of stock

How to Set Up Cont. 3.Form a corporation under your states business laws. This includes filing the articles of organization 4. File IRS Form 2553 which allows your business to be taxed under the subchapter S tax code.

How it is taxed The way they are taxed looks like that of a sole proprietorship or partnership They are not subject to corporate taxes They don’t have to pay federal income tax; instead, shareholders pay taxes on certain capital gains

Examples As of today there are around 4.5 million S corporations Many of the small businesses in America Gingrich Productions MAKO surgical corp. EMTEQ Electrical & Mechanical Technologies

Citations Self-Employed/S-Corporations Self-Employed/S-Corporations Corp.shtml Corp.shtml hapter-s-corporation hapter-s-corporation

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