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:

Three SBA Loan Programs Help Bridge Small Business Finance Racial Gap  ForbesThe SBA has several offerings that can help expand access to capital for minorities, including 7(a) loans, Community Advantage Loans, and a microlending ...
Key person risks are critical for many UK small businesses  Continuity CentralMore than a quarter (26 percent) of small businesses in the UK would have to immediately close if a key person died or became critically ill, according to ...
Industry Ministry to promote small business stimulus plan  Bangkok PostThe Industry Ministry has approved promptly pushing forward the latest stimulus package from the government, allocating 10 billion baht through the Small and ...
Bill de Blasio is a hypocrite on taxes and small businesses  New York Post Mayor Bill de Blasio, who on his quixotic presidential quest has argued that wealthy Americans should pay a healthy 70% slice of their income in taxes, has ...
Tips To Get Instant Approval For Small Business Loan Application  ZipLoanAs a small business owner, you would agree with the fact that you are always in need of more funds. This requirement for funds could be due to the late ...
Amazon Just Announced It's Spending $15 Billion to Dominate This Market. Here's Why Small Businesses Should Pay Attention  Inc.The company announced new tools designed to make it easier for online sellers to grow their business, though like everything, there's a cost.
Instagram quiz questions to help promote your business  Small Business TrendsThese Instragram quiz questions will change the way you market your business.The feature was newlt added. Here's how to get started.
Partnerships Are Force Multipliers For Small Business  Signal MagazineDeveloping partnerships with diverse companies, especially to gain niche capabilities, is one of the ways small business can be competitive, even on prime ...
How to Choose a Bank for Your Small Business  Small Business TrendsA quality small business bank can help you keep your finances in order and give you access to useful financial products like loans and credit options. But there ...
The Small Business Solution to Saving the Amazon  The New RepublicSupporting indigenous people's projects could be more effective than trying to persuade the openly dismissive Brazilian government.
Why Every Small Business Needs a Data Strategy  BizTech MagazineNot very long ago, data was just a byproduct of business processes: It was created because the business did something, but it had no value of its own.
30 Instant Messaging Apps Your Business Could Use  Small Business TrendsEvery business is unique in the way the employees communicate and collaborate, so check out these 30 instant messaging apps. before selecting one.
Emojis by Generation - They All Like Them - Here's How  Small Business TrendsMost people from different generations are ok with the use of emojis in an appropriate context. Here's a breakdown of emojis by generation.
USDA, SBA collaborate for small business expo in West Point  WTVMThe expo included plenty of resources and information on how to run a small business in Georgia.
VelocitySBA Expands its Sales Team to Better Serve Small Business Clients Across the Country  Yahoo FinanceNational SBA Lender Welcomes New Hires in Key Markets LOS ANGELES, CA / ACCESSWIRE / August 22, 2019 / VelocitySBA is expanding its team to better ...
Supermarket considers rationing small business buyers  FreshPlaza.comFreshPlaza, portal for the *fresh* produce industry, offering the latest news, job advertisements, pricewatching, and photo reports.
6 Amazing Twitter Hacks You've Probably Never Done Before  Small Business TrendsYou'll only get out of this world results from using Twitter if you truly know how to release its potential. Try these 6 Twitter hacks to start.
Choose the Best Small Business Loan for your Needs  EntrepreneurSpecific loans can help you start or improve your small business.
Why the Internet of Things and Cyber Security Should Concern Small Business Owners  Channel FuturesThe internet of things is allowing businesses of every size to automate certain processes and introduce new levels of streamlined productivity. And while these ...
Protect Your Business With Adaptive Multi-Factor Authentication  Small Business TrendsAdaptive multi-factor authentication will reduce cyber risks while authenticating users with different access levels, devices, attributes and behavior.
How to use Prime Minister's Employment Generation Programme to fund your small business  YourStoryTill 2008, the Government of India implemented the Prime Minister's Rojgar Yojana (PMRY) and Rural Employment Generation Programme (REGP) to boost ...
How to Make Your Website ADA Compliant, Avoid Accessibility Lawsuits  Small Business TrendsThe effort to make your website ADA compliant, and keep it that way, is getting easier all the time thanks to AI tools emerging in the market.
Mo. Small Business Owners Say Government Doesn't Understand Their Concerns, Need Help With Healthcare Costs and Other Challenges  Suburban JournalsPolicymakers at all levels use the problems small businesses face as a key talking point during political debates. But new opinion polling in Missouri reveals ...
Small business contract to get new requirements, more awards  Federal TimesThe contract modifications are the first signs of forward progress since a court ordered the General Services Administration to rescind the original Alliant 2 Small ...
WeWork gets tax rebate meant for its small-business tenants  Accounting TodayWeWork, which has grown into a global giant in just nine years, is claiming tax breaks in Britain intended for small business. The New York-based company that ...
3 steps to building a great small-business brand  USA TODAYEvery small business has a brand. It may not be the one they want, but they definitely have one. Most small business brands are, unfortunately, made by default ...
Opinion: Finding New Ways to Help the City's Small Business Owners  City LimitsThere are over 230,000 small businesses in the City, nearly half of which are owned by foreign-born New Yorkers. They are the backbone of New York City's ...
HIPAA Violation Penalties Could Have Major Financial Impact on SMBs  Small Business TrendsThe financial impact of HIPAA violation penalties is especially burdensome on small businesses. Here's why your exposure to risk can be huge.
Small Business Administration Writes Off $16.5 Billion In Defaulted Loans To Non-Small Businesses  SmallBizGeniusMany small business owners rely on SBA loans to start and grow their companies. Taxpayers diligently contribute to this Federal Agency that is tasked with.
DOE issues small business research and development funding opportunity announcement  EurekAlertThe Department of Energy (DOE) Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs issued its first ...
Unfair contract terms in small business sector under scrutiny by ACCC  iTWireAustralia's competition regulator the ACCC says unfair contract terms are a big focus as it takes action and moves to ensure small businesses are not...
These Are the Highest Paying Skills for Independent Professionals  Small Business TrendsThe number of independent workers in the U.S. is on a steady rise. According to a 2018 NPR/Marist poll, one in five American workers are contract workers.
The Gap Between Large and Small Companies Is Growing. Why?  Harvard Business ReviewResearch and news headlines are replete with the idea that traditional large companies can't innovate, and that smaller digital companies will render many ...
The Small Business 'Crisis' That Isn't  Gotham Gazette(photo: William Alatriste/City Council). When shops and restaurants that you love and depend on close it can be heartbreaking; I know from personal experience.
US Department of Energy Issues Small Business Research and Development Funding Opportunity Announcement  Energy.govWASHINGTON, D.C. – The Department of Energy (DOE) Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) ...
Small business claims ASU owes them $1 million for video game  AZFamilyIt was a sort of digital “choose your own adventure” game where would-be corporate leaders could apply their knowledge as they worked for a virtual airline.
Six key areas small business owners should focus on to maintain control  NN Business ViewHow do you stay on track and help your business live up to its potential? Here are six areas that are critical to establishing a solid foundation for growth.
Cisco: 6 critical security alarms for UCS software, small-biz routers  Network WorldCisco finds critical bugs in its Unified communications Director and Director Express software for Big Data packages as well as its Small Business 220 Series ...
Ease up on e-commerce restriction to revive Indian economy: Amazon's Anil Agarwal  Business TodayIndia needs to encourage ecommerce and reduce red tape to help small businesses sell online and export goods to help revive sagging domestic economic ...
How AI Features Add Value to Small Business Mobile Apps  TechiExpert.comA mobile application is a compelling way for small businesses to streamline communication, increase customer engagement, and build a viable online ...
Supermarket considers rationing small business buyers to ensure supplies  Business MattersBusiness MattersA senior executive at a major food retailer said it is considering introducing rationing to prevent firms from using retailers as wholesalers.
Ask SCORE: Hiring is a challenge for small businesses  PostBulletin.comSmall businesses employ almost half of all workers in the United States and, through hiring, have been responsible for much of the economic recovery since the ...
Making Business Travel More Affordable - 12 Techniques  Small Business TrendsWithout making business travel more affordable, you can end up costing your company a lot of money. Here are 12 tips to help you save money.
Small Business Owners Fighting to Protect Playing Music in Public  Small Business TrendsIf you play music at your small business, the review of ASCAP and BMI Consent Decrees by the Department of Justice Antitrust Division (DOJ) will likely have ...
Mike Marko Publishes Post on How to Use Twitter for Small Business  StreetInsider.comMike Marko with IM Consultant Services in Cincinnati, Ohio has just announced the publication of his new post on how to use Twitter for small business. He says ...
Kiosks available for small business owners at Empire Outlets  SILive.comThe new specialty leasing program will provide space for small businesses to set up kiosks.
More hackers targeting small business owners. Here’s what to do  wflxHow safe is your business? We are all vulnerable to hackers, but now experts say small business owners are more at risk than ever before.
10 Tips to Improve Customer Experience in Your Small Business  Small Business TrendsIf you want to keep customers coming back to your business, you need to create a positive experience. There's a lot that goes into cultivating that experience, ...
August Event Will Focus on Customer Retention for Your Small Business  Small Business TrendsCustomer retention is one of the key metrics for ensuring the success of any business. Keeping more customers for longer periods, means you are doing ...
A Small Business Scorecard, Part Two  Flathead BeaconToday we continue with part two of the series, “A Small Business Scorecard”. As a reminder, I'm calling this a scorecard, but the goal is not to arrive at a number ...
Niagara Falls offers more small business support grants  Buffalo NewsThe application window for Niagara Falls second round of federally funded small business grants has opened, Community Development Director Seth A.
How Can Brick and Mortar Stores Compete with Online Retailers?  Small Business TrendsCan a small, brick-and-mortar store ever hope to compete with online retailers—specifically, with Amazon? Apparently yes: Nearly 86% of retail sales still ...
How Your Small Business Can Land Government Contracts  Business.comThe U.S. government buys a wide range of goods and services from businesses of all sizes each year. Here is how your SMB can get a government contract.
Small Business Trends To Watch Out For: Stay Ahead Of The Game  ValueWalkPeople also often say that working from home account for more time wasted and less time being productive. studies prove that it's actually.
Head of Small Business Administration visiting Sioux City  Radio IowaThe head of the U.S. Small Business Administration's lending operation will be in Sioux City today to meet with lenders and to visit businesses that are ...
CenturyLink Expands SIMPLE Service for Small Business Owners  NasdaqCenturyLink, Inc. CTL has expanded its SIMPLE for Business portfolio of prepaid services to include SIMPLE Internet + Digital Phone. The.
Shootings raise level of alarm at small businesses  Washington PostNEW YORK — At a four-hour meeting last month, Michelle Abdow's staffers got to experience some of the sights, sounds and even smells they could encounter if ...
How Merchant Cash Advance Can Help with Working Capital  Business.comFind our if working capital through a merchant cash advance is the right solution.
Atlanta Small Business Profile - Alan Mishkoff, Granite Garage Floors  Atlanta Small Business NetworkOn this week's episode of the Atlanta Small Business Profile, Ted Jenkin speaks with Alan Mishkoff, Founder and Franchisor of Granite Garage Floors.
Free Monthly Small Business Bootcamps Begin August 22nd at Malcolm X Library  San Diego Voice and ViewpointA new Innovation Bootcamp will begin offering monthly, “Innovate-Up” small business workshops starting Thursday, August 22nd from 9:30 a.m. – 12:30 p.m. at ...
About 35 vendors expected at today's Small Business Expo  Texarkana GazetteThe Chamber of Commerce hosts a Small Business Expo from 4 p.m. to 7 p.m. today on the corner of Third Street and Texas Boulevard. Aug. 22 2019 @ 4:21am.
ICIC builds ecosystem for small businesses  BayStateBannerIn 1994, when Harvard Business School Professor Michael Porter founded the Institute for a Competitive Inner City, decades of capital flight had taken a toll on ...
Empire Outlets creates space for small businesses to open kiosks  Spectrum News NY1Empire Outlets has launched a new specialty leasing program that will provide space for small businesses to open up a kiosk at the shopping center.
Supermarket considers rationing small business buyers in event of No Deal Brexit  Meat ManagementPosted on Aug 22, 2019. A senior executive at a major food retailer has told the BBC it is considering introducing rationing. It says it will prevent firms that have ...
What To Look For In A POS System For Your Small Business  ForbesIn the old days, store owners used unsophisticated cash registers or even a shoebox to store their cash behind the counter. Times have changed. Technology ...
What's it like to be the first person to do solmething?  Small Business TrendsHave you ever been the first person to do something? One this week's Small Business Radio Show, Tracy Edwards shares her story of being first.
Government issues small traders with EORI numbers as no-deal ramps up  http://smallbusiness.co.ukTreasury will automatically enroll small business that trade with the EU with EORI customs IDs n bid to stave off chaos of a no-deal Brexit.
What happens when a small business owner dies?  http://smallbusiness.co.ukShareholder Protection Insurance helps you plan your business succession when you die, enabling a smooth transition for your small business.
5 Tips for Expanding Your Small Business (The Right Way)  EntrepreneurMany small-business owners want to grow their companies, and they want to do it fast. But if you rush into expandsion without a plan, you risk losing everything ...
Looking to start a small business? Brasher Falls wants to help, if you open there  NNY360BRASHER FALLS — A micro-loan program initiated by the Brasher Town Board in 2011 and operated by the St. Lawrence County Industrial Development ...
Developing Great Managers for Your Small Business  WCBS 880When an organization has a great manager at the helm leading the way, success is imminent. A great manager makes sure all aspects of the business are ...
Small business workshop slated  The Courier“Seven Costly Mistakes Small Businesses Make with Their Websites & Marketing,” will be discussed in a workshop from 8 to 11 a.m. Thursday at the Hancock ...
Small businesses learn internet security at Chamber event  Victoria AdvocateMost people's perception of a hacker is a kid in his parents' basement surrounded by Twinkies, said Larry Brusso, a security expert for D.E. Web Works.
48% of Small Business Employees Have Access to Too Much Data  Small Business TrendsWith the right data classification policy in place, you can identify the types of data you have, who can access it, and secure the information.
HALL: Don't Turn Your Back on Small Business, Governor  North State JournalSmall businesses are the engine of North Carolina's economy, yet they all suffer from one problem: access to affordable health insurance. This message doesn't ...
How Small Business Should Think About Financing in 2019  Global Trade MagazineThe good news is, enabling technology allows small business owners to access various forms of capital quickly and efficiently.
Sports Quotes to Inspire Your Team Towards Success  Small Business TrendsAn extensive collection of motivational sports quotes related to business, leadership and teamwork so you can inspire your team to achieve success.
Many Small Businesses Don't Understand Retirement Plan Options  The 401(k) SpecialistSmall businesses are an essential part of the American economy. They spark innovation, drive competition and employ many people.
Hobart CBD parking zone proving a headache for motorists, Small Business Council boss says  The MercuryHOBART motorists are being caught out by a confusing parking zone with contested reports that machine payment is being accepted at times when parking is ...
Small business conundrums – Virtual company or real premises?  Business MattersBusiness MattersIs your small business looking to relocate or expand? Do you have problems storing stock and urgently need a solution?
GSA preps industry for Alliant 2 Small Business redo  Washington TechnologyFive months after nixing awards, the General Services Administration is previewing its plans for a second try at awards on its Alliant 2 Small Business contract.
Bruce Sackrison's Insurance Matters: Does your small business need key person insurance?  Napa Valley RegisterIf you have employees, keep reading to see if you need key person insurance.
William Watson: Slim down our sacred small-business cow  Financial PostIn the Chinese calendar this is the year of the pig. In Canada we are about to enter the season of the sacred cow and fatted calf, i.e., the federal election ...
Best cell phone plans for small businesses  Digital TrendsJust as one shoe size can't fit all, there's no single cell phone plan that will suit every small company. But there are numerous high-quality plans that are worthy ...
Former CEO of Atlantic Diving Supply settles fraud allegations for $20 million  The Washington PostLuke Hillier was accused of defrauding the government by obtaining contracts for small businesses that his larger company shouldn't have received.
9 green technologies small business should consider  The Next WebGreen technologies can offer benefits to businesses while at the same time making it more environmentally sensible. There are a lot of options for smaller ...
What Small Businesses Should Look for in a CRM Solution  Small Business TrendsSmall business owners should always be looking for an edge. Seek whatever increases market competitiveness and provides opportunities to scale.
Hardship rules on credit reporting to impact small businesses  The AgeIt's hoped small business owners will continue to see benefits from the rollout of comprehensive credit reporting.
Small Business Spotlight Follow-Up -- Cobblestone Hop Yard  WHECA month ago we were out at Cobblestone Hop Yard learning about their operation in Ontario and Wayne County. Now, those hops are ready to be picked -- and ...
50 Businesses Every Small Town Needs  Small Business TrendsWhat business does every small town need? If you want to contribute to the business landscape in a small town, here are 50 ideas to consider.
Amazon Announces 150 New Tools and Services Have Launched in 2019 to Help Small and Medium-Sized Businesses Grow Their Online Sales  Business WireAmazon (NASDAQ: AMZN) today announced 150 tools and services have been launched since the beginning of the year to help independent small and ...
Trump claims economy is 'incredible' as his favorite indicators tumble  Business InsiderSeveral of the economic indicators the Trump administration showed off in a September briefing have since fallen from their highs, New York Times reporter Jim ...
Digital Tax on Google, Amazon, Facebook, others will gut consumers and small businesses  Fox BusinessGoogle, Facebook, and Amazon and several other major tech companies argued the digital services tax by France will hurt small business and consumers ...
How to Manage Reviews for Better Small Business Profit  Small Business TrendsDid you know the businesses that manage their reviews best actually earn more money? Here's how to do it right for your small business.
25 Amazing Productivity Tools for Small Businesses  AllBusiness.comFor entrepreneurs who want to improve business productivity, we've researched 25 must-have tools designed to help you run your company more efficiently and ...
Should You Use Long Form Video Marketing for Your Small Business?  Small Business TrendsPeople watch more than 5 billion videos every single day on YouTube alone. When you add Facebook, Instagram and all other platforms, the popularity of the ...
The Power of Instagram Influencers for Your Small Business  Small Business TrendsA new report, Influencer Marketing Benchmarks, looks at AB categories, platforms, and *content* types across 4 social media networks. Here's what it found.
Tarrytown Small Business Spotlight: Fitness Machine Technicians  Tarrytown, NY PatchTarrytown Small Business Spotlight - Tarrytown-Sleepy Hollow, NY - Our business series features local entrepreneurs. This time we feature a business that ...
Homeless crisis forces small business owner in California to relocate, she says  Fox BusinessAs the homeless crisis continues to be a problem in California, one small business owner took her complaints directly to Gov. Gavin Newsom in a Twitter video.
Reasons your small business loan may be rejected  The PunchFor some business owners, it is a nightmare scenario: You were counting on getting that small business loan, but the bank said no. What do you do n...

Fire the CEO

If you are the boss and you think your job... Read More

Incorporating a Small Business: S corporations versus C corporations

If you've been considering incorporating your small business, you've probably... Read More

Internships: Good for Everyone

Many job applicants want a job but often do not... Read More

Provide Affordable Health Care To Employees At Little To No Cost To You

You can provide affordable health care plans to your employees.... Read More

Small Business Success: Thriving During Change (And Landing On Your Feet!)

If I had $1.00 every time I heard someone say... Read More

A Gift Basket Home Business is an Easy Way to Wrap up Profits

You want to know more about making money with your... Read More

Blowing Your Own Horn ? A Key Marketing Strategy for Small Business

-- Building Credibility Through Success Stories --Successful solo entrepreneurs spend... Read More

Explode Your Consulting Income

Here are just a few ways to increase and diversify... Read More

Do You Microbifer in Your Cleaning Business?

Microfiber cleaning towels have been around for about ten years... Read More

Five Tips for First Time Entrepreneurs

It seems so long ago that I started my first... Read More

Small Business Success Secret: Focus on Your Genius Work?

Do you know what your genius work is? It's the... Read More

6 Steps to a Successful Medical Spa Expansion

According to the American Society for Aesthetic Plastic Surgery, since... Read More

Most Franchises Are Small Home Businesses

Many of our nations 400,000 franchisees run their businesses out... Read More

Franchises Must Meet Legal Definition to be an Actual Franchise

All franchises must meet the legal definition of a franchise... Read More

Is It Recess Yet?! Confessions of a Self Employed Workaholic

I have a confession to make. My name is Caroline... Read More

Small Business Health Check-Up

If your home business is not performing the way you... Read More

Setting Up as an Electronic Repair Authorized Service Center

If you plan to upgrade your workshop into an Authorized... Read More

Fleet Washing Operations Manual Sample Outline

In the Truck Washing Business every single type of vehicle... Read More

Why Does a Business Fail and What Can You Do to Stop It?

I believe the number one reason why a business will... Read More

Cashing In Your Chips & Pastures New

No, I'm not talking about gambling or dairy cows ?... Read More

Build Credibility with Expertise

As an Investment Representative you've worked hard to build trust... Read More

How to Start Home Based Travel Businesses

Home based travel businesses are no longer the wave of... Read More

The Most Important Decision of Your Massage Business Career

Don't you find that there are so many decisions you... Read More

Does Your Business Need a Toll-Free 800 Number?

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

Business Debt Collection Letter Writing Secrets

Debt collection letters--an overview"Debt collection letter" in the singular may... Read More