S corporation

Tax Treatment of Business Entities Part 5: S Corporations

Startup business owners must consider the legal and tax considerations associated with selecting a particular type of business structure. This is the fifth part of a series of blogs on the tax treatment of business entities. This final segment will address the tax treatment of S corporations.

S corporations are entities that elect to pass corporate income, losses, deductions, and credits through to their shareholders who report any flow-through income and losses on their personal tax returns and taxed at individual income tax rates, similar to a partnership. Thus, S corporations avoid double taxation on corporate income, unlike C corporations. However, S corporations are responsible for tax on some capital gains and passive income at the corporate level. The rules for Subchapter S corporations are found in Subchapter S of Chapter 1 of the Internal Revenue Code.

Tax Treatment of Business Entities Part 1: Introduction

When starting a business enterprise, one of the most significant and important decisions to make is the choice regarding the legal form to use in operating the business. The alternatives include sole proprietorship, partnership, corporation (C corporation), S corporation, and limited liability company (LLC). Startup business owners must consider the legal and tax considerations associated with selecting a particular type of business structure. This is the first part of a series of blogs on the tax treatment of business entities.

Tax Breaks for Home-Based Businesses

Home-based business owners may not be aware that there are many ways to cut their tax bill. Many tax breaks are available for home-based businesses, here are some tips for taking advantage of these allowable business expenses.

Business structure

Sole proprietors must pay self-employment taxes. Forming a corporation or another business entity like an LLC and electing to treat it as an S Corporation may help reduce self-employment taxes. S Corporations allow home-business owners the opportunity to pay themselves a “reasonable salary” and treat any remaining profits as a profit distribution, both of which are not subject to self-employment taxes.

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