Online Incorporation MaxBlog

Determining the best corporate status for your business has many considerations. When thinking about self-employment taxes however, forming an S corporation offers a clear-cut benefit over forming an LLC. This tax applies for such things as Social Security and Medicare, much like the payroll tax deducted from ones paycheck.

In an S Corporation, an individual shareholder only pays tax on salaries and bonuses they receive from the company. On the other hand, a shareholder in an LLC pays on both salaries/bonuses and their share of profit in the company, which can amount to more than 15% of taxable income.

“Can S Corporation Status Reduce Self-Employment Taxes?” in MaxFilings’ Knowledge Center addresses this issue and raises other important considerations you must be aware of.

Are you incorporating a new business?…Or looking for information on the various corporate structures available? Sometimes the jargon associated with different explanations found by general searches on the Internet can be difficult to understand.

Basically, the differences in various corporate structures lie in their tax treatment. An S corporation is a standard corporation that elects special tax status from the Internal Revenue Service through the filing of IRS form 2553.

Many of the benefits of an S corporation are the same as other corporate structures, such as:

- Limited liability of debts, obligations, and liabilities incurred by the business or stemming from legal action(s).

- Protection of shareholders’ personal assets

However, unlike a C corporation, an S corporation does not pay any income tax itself. Rather, it is more like a sole proprietorship, limited partnership, or LLC where an individual shareholder reports their share of the corporation’s income and loss on their personal tax return, also known as pass-through.

So why would you want to choose an S corporation over other options? Some points to consider:

- An S corporation is for those wanting limited liability and a formal corporate structure but with pass-through taxation of profits, thus avoiding double-taxation.

- By law, an S corporation is considered an individual entity, and separate from its owners/shareholders.

- Easier to raise capital since stock and other forms of financial securities can be issued.

Further explanation of an S corporation and the different factors to consider is described simply at the Knowledge Center at MaxFilings. And after researching with this useful resource and consulting with an attorney, MaxFilings’ online incorporation center can help you form whichever structure fits your needs.