New episode discusses the tax benefits of life as an S Corporation
Businesses that elect to file under Subchapter S of the Internal Revenue Code are known as “S Corporations” – and they may be in for a significant advantage come tax season. However, maintaining S Corporation status requires careful adherence to a series of compliance and reporting obligations, noted a Wolters Kluwer CT Corporation expert during a new episode of the company’s recently launched CT Expert Insights podcast.
Tim Jensen, Manager of Customer Service at CT Corporation, discussed some of the common benefits that S-Corporations share with other types of formal business entities, such as easier access to capital, the ability to deduct business expenses and limited liability protection for the owner’s personal assets. But an S Corporation’s largest appeal may be its eligibility for pass-through taxation, whereby a company pays no corporate tax on profits or losses.
“Instead those profits and losses are passed through and reported on the owner’s individual tax returns. Any tax due is then paid by the owners at their individual tax rate, not the corporate tax rate,” Jensen said.
Still there are some potential drawbacks to consider as well. For instance, companies seeking to become an S Corporation must comply with a stringent litany of qualifications, including a strict limit of 100 shareholders. Entities in the vein of financial institutions or insurance companies may also be barred from obtaining S Corporation status altogether.
Businesses that do qualify as an S Corporation will need to closely monitor state-by-state due dates for filing annual statements and franchise taxes. Jensen noted that CT Corporation provides services to help companies manage their initial and ongoing business obligations.
“We can assist with all the related filings to get your S Corporation properly set up and more importantly keep it in compliance going forward,” he said.
