As small business owners, we all have at least two things in common when it comes to our companies: Keeping other people’s hands off our personal assets and paying the lowest possible taxes (this usually means having profits taxed on our individual tax returns.) That’s what the S-corporation is all about. While the limited liability company (LLC) is quickly taking its place, S-corporation benefits still do outweigh LLC benefits for many companies. But how do you know it’s right for you? Let’s take a look.



What is an S-Corp Exactly?

An S-corporation is basically a regular corporation (or C corporation) that decides to go with a special tax status. Forming an S-corporation lets you enjoy the limited liability of a regular corporate shareholder while paying income taxes as if you were a sole proprietor or a partner. Unlike a regular corporation, the S-corp itself does not pay any income tax. Here’s a closer look at some of the perks involved with forming this kind of business entity.

S-Corporation Benefits:

•Less Risk. An S-corp is said to have less risk from government audits as a corporation, as opposed to sole proprietor or LLC.

•Minimal Liability. As mentioned earlier, this is one of the biggest S-corporation benefits – having limited personal liability for business debts.

•Flexibility. With an S-corp, owners can use corporate losses to offset income from other states.

•Tax Benefits. You can save on employment taxes by taking distributions instead of salary. And with an S-corporation, there is no double taxation threat because the corporation is not a separate taxable entity. (I should mention that a handful of states do tax an S-corp like a regular corporation. You can check with your state treasury department to see if yours is one of them.)

What’s Next?

Now that we’ve answered the question, “What is an S-corp?" You should have a good idea whether or not it’s right for your company.

If you’ve decided to give it a go, you can proceed with the filing of regular corporation paperwork with the state (since the articles of incorporation are the same for the S-corporation.) Then, after you receive all the paperwork back from the state, go ahead and fill out the IRS form that’ll give you that special tax status we talked about. Of course, if you don’t feel comfortable doing this alone, you can consult an attorney, accountant or an online incorporation firm. For what should be a reasonable fee, they’ll be happy to help with paperwork and to answer your questions.