S-Corp


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Wyoming C-corp Privacy

An S-Corporation is among the options of entities you can form when creating a business. S-Corporations provide companies with investment opportunities, protection via limited liability, and perpetual existence. S-Corporations are different from C-Corporations in that S-Corporations do not have to deal with double taxation and only file taxes annually. There is also a limit to how many shareholders the company may have. The S-Election takes place at the federal level with the IRS. At the state level, every Wyoming Corporation is formed the same way. This is done by filing Articles of Incorporation with the Secretary of State. This holds true for C-Corps, S-Corps, Non-Profits and Close Corps.

Advantages of S-corporations

There are numerous advantages associated with an S-Corp including providing limited liability protection for directors, shareholders, and officers.

S-Corporations also take advantage of pass-through taxation. This means that owners of the company will report profits and losses that are taxed when filing their own personal income taxes. This allows owners to avoid double taxation. This is unlike C-Corps which have double-taxation, e.g., taxes are paid on corporate income and on personal dividends.

Additionally, S-Corporations only need to file taxes annually as opposed to C- Corporations which must file taxes every quarter.

S-Corporations also offer investment opportunities. Specifically, the corporation can bring in investors by selling stock shares.

Finally, S-Corps have perpetual existence. This means that even in cases when the owner of the business dies or leaves, the business will continue without any complications. Read more here about Wyoming Corporation benefits.

Disadvantages of S-corporations

There are some disadvantages associated with S-Corporations. First, you can only form an S-Corporation if you are a citizen or permanent resident of the United States. By contrast, limited liability companies and C-Corporations do not require legal residence for their formation. S-Corporation can also only have up to 100 shareholders.

The IRS tends to scrutinize S-Corporations more closely than other business entities. This is because payments for both shareholders and employees can be distributed via dividends or salaries, with each method having its own taxation.

Finally, S-Corps can have high expenses both at the formation level and with ongoing costs. The fees will, of course, vary by state, but many states do charge ongoing fees, including those for franchise taxes or annual reports.

Forming an S-corporation

The process of forming an S-Corporation begins with setting up a C-Corporation or LLC. After you have formed your C-Corp or LLC, you can file to change your tax status to an S-Corp. You must also meet certain requirements:

  • Only US citizens or permanent residents can own the company;
  • Have less than 100 shareholders;
  • All shareholders must be individuals instead of corporations; and
  • Having a single stock class.

To form your S-Corporation, begin by selecting your legal business name. Some states allow you to reserve the name, but not every state does. From there, file the Articles of Incorporation and give your initial shareholders stock certificates. Next, you will need to get your business license as well as any industry-specific certificates. You then apply for an EIN and any other required ID numbers. Before 75 days have passed after forming the corporation, you must file form 2553 with the IRS.

Frequently Asked Questions

How much tax does an S Corp pay?

An S-Corp is not taxed at the same rate as a C-Corporation (which is 21% at the time of this writing). An S-Corp can be taxed more or less but avoids double taxation. These options should be discussed with a CPA.

Is S Corp considered self employed?

An S-Corp allows you to self-employ while also avoiding some self-employment taxes legally. This structure works well for entities with active income, but you should speak to a CPA first.

Are S corps taxed twice?

An S-Corp is a pass-through entity and so the earnings are not taxed twice. That means the company does not pay taxes at the company level, only the owners (shareholders or members) pay taxes on income.

Are S corps taxed at 21 %?

An S-Corp is not taxed at the same rate as a C-Corporation (which is 21% at the time of this writing). An S-Corp can be taxed more or less but avoids double taxation. These options should be discussed with a CPA.



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