S Corporation Lawyers

What is S-Corporation?

When you file Articles of Incorporation at the state level you can elect:S Corporation Status¿ with the IRS. Once the IRS approves the S status, the corporation will be taxed like a partnership or sole proprietorship rather than as a separate entity. What this means to you is that income is passed through the S corporation to you, a shareholder.

Why Create an S Corporation?

A regular for-profit corporation is required to pay income tax on taxable income generated by the corporation. As well, dividends distributed to shareholders may be taxed as income to the shareholders.:Double taxation¿ is when the corporation and shareholder are taxed. By forming an S corporation, you can avoid the double tax and funnel the corporation¿s profits and losses directly to yourself.

What Are Other Benefits of S Corporations?

Setting up an S corporation can provide you with many benefits including:

As an owner of an S corporation you can limit your liability.
S corporate losses pass down to your individual return. You can take the corporation¿s loss and use it to reduce your personal income tax.
S corporations don¿t pay income taxes.
S corporations don¿t have to pay FICA (Medicare or Social Security) taxes on profits and dividends.

Who Should Not Create an S Corporation?

While S corporations are a great way to limit your taxes, they are not for everyone. If you plan on reinvesting corporate income, an S corporation would not be a good choice.

Who Is Eligible to Create an S Corporation?

In order to create an S corporation, you must meet all of the following federal requirements:

Corporation filed at the state level
No more than 75 shareholders
Each shareholder must be a U.S. citizen or a permanent resident alien
The corporation issues only one class of stock
No more than 25% of the corporation¿s income is derived from passive investment activities

If you are a calendar year corporation with your fiscal year ending on a date other than December 31, you must get IRS permission before applying for S status.

What Is Passive Income?

If more than 25% of the corporation¿s income comes from passive sources for three consecutive years, then the IRS will revoke your corporation¿s S status. The most common form of passive investment is real estate.

Do I Need a Lawyer?

An attorney familiar with tax laws and regulations can help you determine if an S corporation is right for you. A lawyer can assist you with following the detailed procedural rules needed and adhering to the deadlines for organizing an S corporation.

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