Tax Treatment
- S corporations have no separate tax-paying status or tax bracket.
- S corporation shareholders are taxed as if the business were a partnership.
- The S corporation files an information return with the IRS; shareholders report their proportionate shares of profit and losses on their individual income tax returns.
Advantages
Many of the same benefits of corporations are available to sole proprietors and partners who elect S status:
- Limited personal liability for business indebtedness.
- S corporation profits and losses are passed through to the shareholders.
- Shareholders avoid the double taxation than can occur if dividends are taxed at the corporate rate and then are taxed again at the individual rate once distributed to the owners.
Disadvantages
- Higher start-up costs and formality.
- Complex federally mandated reporting and administrative requirements.
- Without proper planning, the death, disability or retirement of a major shareholder can affect the well-being of the remaining principals, the other employees, and the individual's family.
In general, unless a business is large and growing larger, or there are reasons to bring in other shareholders, such as raising additional capital for operations or expansions, it may be just as well to remain unincorporated.
Back to Top | Next
Ohio National is not affiliated with, nor does it endorse or sponsor, any particular prospecting, marketing or selling system.
