Florida S-Corporation

S-corporations are a form of business entity in the United States. To qualify for S corporation status, there are various requirements. These include being a Florida corporation with resident shareholders, having no more than 100 shareholders, one class of stock, and not being a financial institution, insurance company, or international sales corporation.

C-corporations are one of the most common forms of business entity structure in the United States. Although C corps allows business assets to be separated from personal liability, there are more benefits to S corps.

The benefits of a C-corporation include:

• Limited personal liability
• The ability to sell stock without permission from other stakeholders
• Unlimited number of shareholders
• The ability to deduct tax-exempt business expenses

It is important to note that a C-corporation is a separate taxpayer. This means that the income of the business, along with expenses, are taxed once for the corporation, and again on the dividends paid out to shareholders. Because of this, C-corporations suffer from what is called double taxation.

Double taxation is the main disadvantage of C-corporations, which is why many C-corps choose to elect “S-corporation” status should they meet the requirements. Overall, S-corporations receive more tax benefits than c corps due to being a flow-through tax entity. Overall, S-corporations receive more tax benefits than c corps due to being a flow-through tax entity.

S-Corps are pass-through entities. This means the company does not file and pay taxes. Instead, the shareholders (owners) show all earnings on their personal tax returns. This is similar to that of a sole proprietorship, partnership, or LLC.

S Corp Taxation

• Payroll taxes: Because S-corporations are employers by default, they will be required to file monthly payroll deposits. In the state of Florida, payroll taxes include Medicare tax and Social Security tax. Medicare tax is at a tax rate of 1.45% on the first $200,000, while the Social Security tax is at a rate of 6.2% on the first $132,900.
• Franchise taxes: Some states require a minimum annual franchise tax, while Florida does not. Franchise taxes are also referred to as personal income tax.

There are various reasons why you may choose to incorporate as an S corporation, but the most common reason is avoiding double taxation. If corporate regulations are followed, they can also offer a high level of liability protection and overall flexibility.

S corporations are great for companies with a smaller number of domestic shareholders. If you are looking to reduce personal liability, and want to avoid double taxation, it is definitely a better option than a c corp.

There are several forms of taxation, and an LLC is one of them. LLCs are the most flexible when it comes to electing taxation. This means that LLCs can choose to be taxed as any of the various entities, including an s corporation. Filing as an S-Corp can provide tax savings, which is why an LLC would elect to be taxed as such.

Advantages

• Limited liability: All the directors, shareholders, officers, and employees cannot be chased after for their personal assets should something happen to the business.
• Pass-through taxation: Because the shareholders pass on their share of profit and loss, they will be required to pay tax solely on their own dividends, through personal income tax returns.
• Elimination of double taxation: C corporations are taxed once on the corporate income, and again on personal income, S corporations avoid this.
• Investment opportunities: It is easy to attract investors through selling shares of stock meaning growth is more probable.
• Unlimited life: Even if shareholders die, leave, or go to jail, the corporation will continue to exist.
• Once-a-year tax filing requirement. C corps must file quarterly.

Disadvantages

• No foreign investments: The shareholders may only be U.S. citizens and permanent residents.
• Limited ownership: No more than 100 shareholders are allowed or your s corp will be dissolved.
• Formation and management fees: There are various regulations and fees that must be paid in order to maintain s corp status.
• Tax qualification obligations: If you make mistakes, you may no longer hold s corp status and be taxed as a c corp.

Forming your company as a Florida S-Corporation brings numerous advantages, such as limited personal liability, pass-through taxation, and the elimination of double taxation. Consulting with our partners at Bench can provide you with additional support in organizing your financial records, maximizing deductions, and ensuring a seamless and efficient filing process for the current year.