S Corporation ? What Is It?

For many small businesses, the "S" corporation is the business entity of choice. The "S" in S corporation refers to a tax designation. All corporations are created the same way under state law. A small business must then chose a tax status, to wit, "C", "S" or non-profit. Important issues concerning S corporations are covered in this article.

C Corporation v. S Corporation

Federal tax laws automatically consider every corporation to be a "C" designation. A small business, however, may elect to be designated as an "S" corporation by filing IRS form 2553. The election must be made prior to the tax year in which it is going to be effective. All shareholders must sign the election.

A C corporation stands alone for tax purposes. It must file tax returns and pay taxes on profits. Profits and losses are reported on the corporate tax return and do not pass through to shareholders. C corporations can elect any calendar month as the end of their fiscal year.

An S corporation is a pass through entity for tax purposes. It does not file a tax return for the purpose of paying taxes, but does file information returns. All profits and losses are passed through to the shareholders. In turn, each shareholder reports the profit or loss on his or her individual tax returns in proportion to their ownership interest. For instance, if you own 30% of the total issued shares, 30% of the profits or losses must be reported on your personal tax returns. S corporations must have a fiscal year-end of December 31. If you intend to eventually take your business public, you cannot use an S corporation.

Although S corporations are a tax choice, there are limitations on what corporate entities can make the election. The biggest hurdles are:

1. There can be no more than 75 shareholders;

2. Each shareholder must be a person, not a business entity; and

3. There can be only one class of stock.

Benefits

While S corporations provide relief from the tax filings of a C corporation, there are negative aspects to using them. Simply put, a C corporation can write off more expenses. S corporations may not be able to deduct certain types of insurance and costs of doing business. The list is fairly complicated, so you should speak with a tax professional prior to deciding which designation works for your business.

S Corporation vs. Limited Liability Company

S corporations have a definite tax advantage over limited liability companies ["LLC"]. Distributions from LLCs to shareholders are subject to self-employment tax [15.2 percent] in their entirety. Distributions from S corporations, however, can be broken down into two categories, salaries and dividends. The dividend distributions are not subject to the self-employment tax. Avoiding self-employment tax can make a substantial difference in the amount of money you take home.

In Closing

I always laugh when someone emphatically says that every business should be formed as a particular entity. Such statements are simply wrong. The "best" business entity depends entirely on the nature of your business. In many instances, S corporations are ideal.

Richard Chapo, Esq., is a business lawyer with http://www.sandiegobusinesslawfirm.com - offering legal advice to San Diego businesses. This article is for general education purposes and does not address every facet of the subject matter. Nothing in this article creates an attorney-client relationship.

In The News:

Chicago Workshop Teaches Small Businesses about the Voice of the Customer  Small Business TrendsShares. |. Print This Article · Email this Article. 0. Shares. Email this Article Print This Article. Voice actor business. The Voice of the Customer (VOC) grows louder ...
3 Reasons Your Small Business Should Be Creating More Visual Content  Black EnterpriseSmall business owners who increase the amount of visual *content* that they share on social media can significantly improve their audience engagement rate.
10 Ways to Improve Your Business, Online and Offline  Small Business TrendsShares. |. 50 · 5. Print This Article. Email this Article. 50. Shares. 50 · 5 · Email this Article Print This Article. To run a successful business in 2019, you need to ...
Security camera catches thief stealing watches from small business in Phoenix  AZFamilyThe owner of a watch shop in Phoenix said he's out money after someone broke into his shop and stole $12000 worth of watches.
GEICO's Tips for Small Business Owners at Tax Time  Business WireWASHINGTON--(BUSINESS WIRE)--Small business owners know “tax time” is an all-year-long process. With new tax rules in effect, GEICO has four tips that ...
House Members Want American Small Business Exports to Rise  Small Business TrendsWhen it comes to exporting, small businesses face considerable hurdles. The House aims to help small businesses by improving the SBA Step Program.
Hulu’s ‘Small Business Revolution’ Announces Searcy’s 6 Small Businesses To Be Featured On The Show  KFSM 5NewsonlineSEARCY, Ark. — On Friday, March 22, Small Business Revolution hosts Ty Pennington and Amanda Brinkman made their way to Searcy to reveal the top six ...
How small businesses saved our job-creating, uh, bacon  New York Business Journalthe small firms that survived, the ones that somehow weathered the insidious “New Normal” that defined that period, became stronger from their devotion to ...
Small Businesses Like Mine Need Paid Family and Medical Leave  CounterPunchTen years ago, my husband and I opened a specialty oil and vinegar shop. Early on, we learned that our store would be only as good as the people who work in ...
No, it’s not money — this is the one thing small businesses need to succeed, according to survey  Business InsiderKabbage recently polled 600 thriving US small business owners to better understand their cash flow issues and found that a third of them started with less than ...
Uh Oh! Small Business Optimism Fading, Report Finds  Small Business TrendsAccording to the Spring 2019 Paychex Business Sentiment Report, small businesses are feeling less confident about the economy. But, optimism is still high.
Intuit Tweaks QuickBooks Subscriptions, Again--and Small Business Owners Aren't Happy  Inc.Intuit, the maker of popular QuickBooks accounting software, is tweaking the terms of its online subscription plans next month--and some business customers are ...
Business Digest: Small Business Center seminar set for April 6  Santa Cruz SentinelThe Small Business Development Center will have the seminar “Build Your Business: Writing Your Best Business Plan” from 9:30 a.m. to 12:30 p.m. April 6 at ...
Six Searcy small businesses selected for 'Small Business Revolution'  www.fox16.comThey are Savor & Sip, Zion Climbing Center, noomaLIFE, Whilma's Filipino Restaurant, El Mercado, and Organic Woodwork.
Small businesses, experts slam "stressful" Incomes Register  YLE NewsExperts and entrepreneurs increasingly say that small businesses are having their feet held to the fire by the Tax Administration's new Incomes Register ...
7 Small Business Ideas For Bengaluru  GoodreturnsIf you are reading this article, you have most likely thought of starting a small business of your own and become your own boss. However, just the desire to start a ...
Nine small business development officials suspended over corruption claims  IOLSeveral officials of the Department of Small Business Development have been suspended with immediate effect.
How small businesses are impacted by tax reform  CNBCSmall business owners are benefiting from a business deductions in the tax code but the change to the individual tax code expires after 2025. So what does this ...
Breach of trust: Small business owners deal with worker thefts  The Augusta ChronicleNEW YORK — The bookkeeper for Deb and Kevin Durken's store, The Boot Shack, forged checks and stole an estimated $225000 over 10 years starting in ...
How Small Businesses Can Master The Art Of Selling On Amazon  ForbesEveryone knows Amazon is killing America's small businesses — right? Believe it or not, many small business leaders say just the opposite. When commercial ...
Small business tsar intervenes over late-paying Ryvita  This is MoneyPaul Uppal, the Small Business Commissioner, has rebuked Jordans & Ryvita for being slow to pay Magellan Design.
Small businesses cheer Trump tax reforms, but some feel they didn't go far enough  CNBCTax breaks enacted to help small businesses aren't permanent, and that's made it difficult for business owners to make long-term decisions.
3 Big-Business Things a Small Business Must Do  The Motley FoolIt's not always easy to compete, but there are a few areas in which it's important to figure it out.
Small Business Trends to Consider That Can Help Increase Business  Paris ExpressSmall business owners have advantages and challenges that leaders of larger companies do not. Whether an entrepreneur is in the early stages of executing ...
Keep your business booming: Five keys to small business success  Forbes IndiaA Seattle entrepreneur speaks about the things to keep in mind to improve chances of small business success.
Small business owners can get free advice - News  Waynesboro Record HeraldWAYNESBORO — Owners of small businesses or those thinking of starting one can get some sound advice in Waynesboro and Greencastle on Tuesday, March ...
House price falls could spill over into small business, financial regulators warn  ABC NewsFalling house prices could spill over into small business lending, squeezing already tight credit conditions and their ability to raise much needed cash, according ...
A strong middle class needs a strong and competitive small business community  GlobeNewswireOTTAWA, March 19, 2019 (GLOBE NEWSWIRE) -- The Convenience Industry Council of Canada (CICC) recognizes the importance of investing in the middle ...
Akervall Technologies Named 2019 Michigan SBDC Best Small Business Of Year  mitechnews.comSALINE – Akervall Technologies has been selected the 2019 “Michigan SBDC Best Small Business of the Year” by Michigan Celebrates Small Business, ...
Want more small business shine? Grow your Twitter universe  USA TODAYMost entrepreneurs fail to take advantage of all the ways a booming Twitter network can enhance their small business.
The Case for Big Business  The Wall Street JournalWashington. Democrats and Republicans seem to have irreconcilable views on economics, but on one point they agree: Small business is better than big.
Radcliff Small Business Alliance welcomes Tuscany Italian Restaurant  Elizabethtown News EnterpriseThe Radcliff Small Business Alliance conducted a ribbon cutting ceremony with its newest member, Tuscany Italian Restaurant, in Radcliff Center on East ...
Joburg small businesses scrambling to stay afloat as load shedding takes toll  EWNSmall companies and entrepreneurs have been hit the hardest and have been given little hope by Eskom CEO Phakamani Hadebe, who warned that it could ...
Wichita restaurant owner named KS Small Business Person of the Year  Hays PostSBA. WASHINGTON, D.C. – Administrator Linda McMahon, the head of the U.S. Small Business Administration, announced the 2019 Small Business Persons of ...
Mouthguard maker, artificial intelligence company win 'small business of the year' awards  MLive.comA Saline mouthguard company will receive the "Best Small Business" award in May through the Michigan Small Business Development Center.
Ask Doug & Polly: Adaptability, persistence and hard work are keys to success in small business  Richmond.comQUESTION: I'm thinking about starting a small business. What are the most important attributes for a small businessperson?
The Atlanta Small Business Show on CBS: Episode 5 - [03.23.19]  Atlanta Small Business NetworkWe had some great segments on this week's episode of the Atlanta Small Business Show, now on Peachtree TV every Saturday morning.
Duplin County farmer named 'Small Business Person of the Year' in NC  WCTI12.comA Duplin County farmer, who is a Canadian immigrant and naturalized U. S. citizen, has been named the 2019 SBA North Carolina Small Business Person of the ...
POS Software for Small Business Market Analysis, Growth, Global Trends, Opportunity with Top Players Fundera, Toast POS, Sapaad, TouchBistro, Cybersys POS, Square - Press Release  Digital JournalPOS Software for Small Business Market to Deliver Prominent Growth & Striking Opportunities Scenario Highlighting Major Drivers & Trends 2019-2026 | Lavu, ...
Germany raises alarm about small businesses’ Brexit exposure  Financial TimesCentral bank becomes increasingly concerned by slow pace of 'repapering' process.
Government Experiments Mean More Funding for Small Companies  Carnegie Mellon UniversityCMU researchers have created a database to help companies make use of public funding.
Small businesses expected to bear the brunt of load shedding  Fin24While large companies have grown resilient to the impact of load shedding after a decade of grid pains, small and medium businesses remain particularly ...
New Data Breach Trends: Small Business Identity Records Now Target #1 for Hackers  CPO MagazineNew 4iQ report indicates that data breaches were up by over 420% from 2017, exposing a total of almost 15 billion identity records. Small businesses are being ...
Small Business Hiring Breaks Record  The Wall Street JournalThe great American jobs machine is still roaring. Slowing global growth and trade friction may cloud the economic horizon, but U.S. small businesses in ...
Microsoft: Windows 10 Will Auto-Uninstall Buggy Updates...And Other Small Business Tech News This Week  ForbesHere are five things in technology that happened this past week and how they affect your business. Did you miss them? 1 — Microsoft: Windows 10 can now ...
Small Business 401(k) Recordkeeper Redesigns Website  PLANSPONSORLT Trust's new website will serve as a 401(k) resource center to employers sponsoring 401(k) plans and to their employees.
How load shedding has impacted small businesses  News24Small business owners in Braamfontein are concerned that they may have to close their businesses if rampant load shedding continues. Speaking to News24 ...
Three Birmingham executives chosen for national business program  Birmingham Business JournalThree Birmingham business leaders are currently going through a national program that will bring business acumen, leadership skills and more back to the ...
This is how a small business could open a rent-free shop at Intu Derby  Derbyshire LiveOne small business could open a shop at Intu Derby rent-free if they are lucky enough to win this new competition. Budding entrepreneurs are in with a chance ...
St. Pete opens small business opportunities at the Pier  St Pete CatalystA handful of small businesses will get a chance to sell their goods on what essentially will be the front door of the new St. Pete Pier. The city plans to include ...
DOE Announces $100 Million in Small Business Innovation and Technology Funding  Energy.govWASHINGTON, D.C. – Today, the U.S. Department of Energy (DOE) Small Business Innovation Research (SBIR) and Small Business Technology Transfer ...
What’s the magic number for cash in a small business? Here are strategies to figure that out.  Philly.comAsk any small-business owner and you'll be told that having plenty of cash in the bank is probably the most important indicator of our financial health.
HP Updates Its Consumer and Small Business PCs  Thurrott.comHP today announced new Envy laptops and convertibles for consumers and a new lineup of ProBooks and HP ProDesk PCs for small businesses.
Gov. Abbott invites local entrepreneurs to small business conference in Edinburg  MonitorSouth Texas entrepreneurs looking to start or grow their business can attend a Small Business Conference on Friday, March 29 in Edinburg, according to a ...
Can Small Businesses Really Afford to Neglect IT?  Small Business TrendsFor companies that ignore tech, redefining IT for XaaS can quickly go from cure-all to problem if the myriad tools aren't properly managed.
Small business grows in NYS, but pay lags behind nation  Times Union Albany. New York might be doing a little better at creating small business jobs than the rest of the nation, but those jobs aren't paying as well as those elsewhere ...
Almost a third of small businesses have no cyber security strategies  http://smallbusiness.co.ukA new report from Business in the Community reveals that many small businesses are leaving themselves vulnerable to cyber attacks.
Co-working Spaces: Transformational Opportunities for Small Businesses  EntrepreneurThe Co-working industry has now grown to include as many as 200 players in India today, including established global leaders and a clutch of new Indian ...
Expectations of weaker economy unites small business owners  Boston 25 NewsNEW YORK (AP) - Although small businesses vary widely in terms of size, industry and issues, they do appear to be generally united by a growing uneasiness ...
Suncorp targets extra $3b in small biz loans  Sydney Morning HeraldSuncorp has vowed to ramp up small business lending by $3 billion, buoyed by officials pushing back against a key recommendation of the Hayne royal ...
China's small businesses are promised more money  Euromoney magazineChinese premier Li Keqiang has told the country's banks they need to increase their lending to small companies, but the details are fuzzy.
Small businesses struggle to find qualified candidates, report finds  CNBCMarty Mucci, president and CEO of Paychex, joins "Squawk Box" to explain Paychex's small business job index report. The discussion touches on the struggles ...
Social Media Management for Small Businesses: How to Do It  Black EnterpriseThe internet has 4.2 billion users, 3.4 billion of whom are actively using social media. Clearly, social media management for small businesses is necessary if you ...
How to protect your small business from the dark web  TechRepublicEducation, monitoring and response tools, and training about the dark web are essential to protecting your small business from cybercriminals.
Opinion: Small business tax would kill Michigan jobs  The Detroit NewsCalley writes: "We should be sending small businesses a thank you note, not a substantially larger tax bill."
Load shedding: Small business owners are losing money  EWNMany business owners have introduced flexitime for workers and are using generators to power the essentials.
KeyBank's Small Business Review Receives 2019 Monarch Innovation Award  GuruFocus.comPR Newswire. CLEVELAND, March 21, 2019. CLEVELAND, March 21, 2019 /PRNewswire/ -- KeyBank's Small Business Wellness Review program has been ...
No, immigrant-owned small businesses won’t “do just fine” under California’s new privacy law  OCRegisterI was drawn in by the coverage of last month's hearing in the State Capitol on California's new privacy law, the California Consumer Privacy Act (CCPA).
Keller @ Large: Tariffs Impacting Small Business Owner In Weymouth  CBS BostonBOSTON (CBS) – The global trade battle begun by President Trump over a year ago shows no sign of abating, even though the negative impact on American ...
Shawn Shouldice: Mandated leave great hardship for small businesses  vtdigger.orgEditor's note: This commentary is by Shawn Shouldice, of Montpelier, who is Vermont state director of the National Federation of Independent Business, which ...
73% of All Small Business Teams Will Have Remote Workers by 2028  Small Business TrendsThe latest statistics from Upwork reveal the growth of remote workforce trends. Will we all wind up working from home eventually?
4 reasons you should work for a small business  Fox BusinessIt can be a smart move for your career, but maybe not for the reasons you think.
Cincinnati restaurateur named Ohio’s Small Business Person of the Year  Cincinnati Business CourierThe owner of a Mount Washington restaurant that began in modest fashion five years ago is the recipient of a prestigious state award.
61% of Veteran Small Business Owners Built Their Business on Facebook  Small Business TrendsIf small business owners want to succeed, they need to understand the impact of technology on small business and customer expectations.
Small Business Women Celebrated in Gros Islet  Loop News St. LuciaWomen around the world celebrated International Women's Day on the 8th of this month but to some organizations, the entire month of March is dedicated to ...
Small Business Construction Expo Coming to Oakland March 22  Engineering News-RecordThe annual Small Business Construction Expo will make its first appearance in Oakland on March 22. Held at the Oakland Marriott, the event celebrates small ...
Brewer named VT Small Business Person of the Year  Vermont BizThe owner of a St. Albans brewing company is named the 2019 Vermont Small Business Person of the Year. Steve Gagner, owner and founder of 14th Star ...
GDPR: What Small Businesses Need To Know  ForbesRemaining GDPR compliant means building a business that data users can trust.
Facebook powering small business to access markets, says India head  Economic TimesNEW DELHI: Social networking giant Facebook is powering small business across the country by providing tools on its platforms to access markets, which ...
The definitions of micro, small, and medium businesses have just been radically overhauled – here's how  Business Insider South Africa"Very small enterprises" have disappeared entirely, as have asset-value ceilings. And companies with turnover of up to R220 million can now qualify as ...
Think About Starting a Side Hustle? 50 Ideas to Consider  Small Business TrendsSide hustles are basically gigs or businesses that you can easily manage alongside a full time job or business. Here are 50 side hustle ideas to consider.
Small businesses suffer under bank credit squeeze  The Australian Financial ReviewSmall businesses face a worsening credit squeeze as more lenders tighten the screws on using the equity in residential properties for borrowing, by reining in ...
Not the usual founders . . . but they could be  The TimesIt's not unusual to find 50 young people bubbling with start-up ideas spending a weekend in a fintech company's shiny headquarters. It is though when more ...
Blake Pate named Small Business Person of the Year in Florence  SCNowFLORENCE, S.C. – Blake Pate followed in his father's footsteps on Tuesday when he was named the 2019 Small Business Person of the Year during the ...
5 Unexpected Places to Network for B2B Business Leads  Small Business TrendsHere are a few unexpected and unconventional places where you should try to do some B2B networking to find your next new prospective client.
10 Tips for Updating Your Small Biz Strategies with New Innovations  Small Business TrendsShares. |. 175 · 36. Print This Article. 3. Email this Article. 175. Shares. 175 · 36 · 3 · Email this Article Print This Article. Updated tech is extremely important for ...
3/17/19: American Black Journal - Small Business Workshop / Fresh Nation  Detroit PBS - One DetroitThe 5th annual Small Business Workshop is coming up in May, and this year's theme focuses on how small business owners can navigate changes in the ...
Small Business Owner On Trump's Tariffs And Trade With China  NPRNPR's Lulu Garcia-Navarro talks with Tiffany Williams about how President Trump's tariffs are affecting her business. She's the co-owner of a luggage shop in ...
"It's a mess": Midwest flooding leaves small businesses reeling  Marketplace APMHeavy rain and melting snow have brought historic flooding to parts of the Midwest. Around 200 miles of Missouri River levees in Nebraska, Iowa, Missouri and ...
A passion for small business is overrated – it won't make you money  The GuardianMy most successful small-business clients aren't the most passionate. What excites them is making money.
How a former Vogue fashion assistant built Glossier from a small blog to a $1.2 billion beauty business  Business Insider IndiaReutersGlossier is now valued at a $1.2 billion company.Glossier announced Tuesday that it had raised an additional $100 million in funding in a round that.
33% of Small Business Owners Struggling to Find the Motivation  Small Business TrendsFeeling down? As the latest small business motivation statistics reveal, you're not alone. Here are all the numbers, plus some tips to help get you going.
Searcy, Arkansas is the Winner of Small Business Revolution Season 4  Small Business TrendsSmall Business Revolution Season 4 will take place in the town of Searcy, Arkansas. Here's what that means for the town as well as viewers.
#ThisIsMyHustle Lets Nigeria's Youth Brag About Their Many Jobs : Goats and Soda  NPRA hashtag called #ThisIsMyHustle started trending in Nigeria in mid-March after Sadiq Abubakar, 30, a small-business owner from Abuja, organized a Twitter ...
Australia's NAB to expand threshold for small business protections  ReutersNational Australia Bank said on Friday it would expand the threshold for small business protections and would work with regulators to implement other key ...
Banning of Unregulated Deposit Schemes Ordinance: Bad news for small businesses?  Moneycontrol.comConcerns have been expressed that the law is extremely harsh and will lead to hardship for many individuals, small businesses etc. Doubt have been expressed ...
Why South Africans should get into the pothole-fixing business  BusinessTechThere are still many opportunities for small businesses in South Africa – provided you know where to look, says Dawie Roodt, chief economist at the Efficient ...
27 Best Small Business Credit Cards in 2019  CardRates.comOne of the fundamental financial rules of having your own business is that you must keep your personal and business finances as separate as possible. This not ...
Small Business Spotlight: Delightfully Delicious  WHECIt's a dog eat dog world when it comes to the competitive pet treats business...
3 ways your small business can break the hiring mold  Fox BusinessYou don't have to do things the same way larger companies do.

Firing Underperforming Employees in Your Small Business

Here are a few tips on how to hand out... Read More

Starting a Business in New Hampshire

Hew Hampshire car wash market. Well we have visited every... Read More

Marketing Your Small Business - The Top 10 Brilliant Ideas

A Brilliant Marketing Idea... sounds great but what is it?... Read More

Analyzing Customers in Your Business Plan

The Customer Analysis section of the business plan assesses the... Read More

Mobile Detailing Expansion Considerations

Expanding your business requires you to take a good hard... Read More

Does Your Business Need a Toll-Free 800 Number?

Should your business have a toll free number for customers... Read More

Definition of Security: Small Business Owner

Yes, that IS security when nobody can downsize you because... Read More

Business Checks are an Added Cost to Your Small Business - Try Making Them Yourself!

Starting and managing a small business is no fun chore,... Read More

Challenging the Gospel of Growth -- Must Business Grow to Survive?

A cherished business doctrine is that growth must be a... Read More

Small Business Success - It?s a Matter of Confidence

I was floored! I couldn't believe what they were saying!... Read More

Small Business Marketing - How Important Are Your First Words?

"What do you do?" It just might be one of... Read More

Your Small Business Suggestion Box

A suggestion box is a really good idea for your... Read More

Write An Effective Job Proposal

I am simply amazed at the problems some of my... Read More

How to Find Success in the Import Export Business

Take advantage of world politics today and start your own... Read More

Success Tips for Small Business Owners

Running a small business requires many skills. However, to do... Read More

Small Business Essentials: Start Here

Thinking of starting a business on line? If so there... Read More

Mission Statements: More Important Than You Thought

If an organization lacks a mission statement, it is worthwhile... Read More

The 5 Traits of Baby Boomer Business Owners

As a practitioner and student of Small Business Marketing, I... Read More

Over Disclosure Hurts Businesses

Many investors and business ethics professionals are calling for more... Read More

Do You Need Accounting Software for Your Small Business?

If you're anything like me then you dislike with a... Read More

Trailblazer Interview with Diane J. Levin, Partnering Solutions

Today is a Red Letter Day! It's special because today... Read More

How To Cut Expenses And Manage Your Business

If you own a small business, you should know that... Read More

Postcard Marketing Your Small Business

One of the best marketing strategies a business or organization... Read More

The Role of the Business Model and Strategy for Business

People will always stress that having a well researched business... Read More

Six Sigma for Small Business

It is not surprising that some people may perceive Six... Read More