Could Structuring Your Business As An S-Corporation Offer Tax Advantages_

1. Could Structuring Your Business As An S-Corporation Offer Tax Advantages?

2. If you’re a newbie to the world of business, you might not yet be familiar with the different ways in which business entities can be structured, the most common of which are sole proprietorships, partnerships, LLCs or corporations. Let’s take a closer look at corporations: By definition, a corporation is a business structure that is formed when an ‘article of incorporation’ is filed with the state. Once this document has been received, processed and set up officially under state law, the corporations’ owner has limited liability for any debts amassed by the corporation, as it is now a separate legal entity. For a newly incorporated company, it will be designated as a C-Corporation, but conversion to an S-Corporation is possible at any given time.

3. S-Corporations have all the benefits of a corporation, with the added bonus of pass-through taxation enjoyed by sole proprietorships and partnerships. In terms of taxes, this unique entity structure offers a number of significant advantages, and working with a small business accountant in Coral Gables could help you determine if this is a good way to structure your business. Here are some of the main tax-saving benefits of an S-Corporation: Pass-through taxation

4. As touched upon briefly above, pass-through taxation is one of the main benefits of this particular entity structure, which basically means that the income and losses of the business, are passed through to the personal tax returns of the owner. As a result, the business isn’t required to pay federal income tax. Savings on self-employment taxes

5. Businesses operating as sole proprietorships or partnerships are subject to self-employment taxes, covering portions of Medicare and Social Security taxes for both employer and employees. S-Corporation owners on the other hand, can pay a reasonable salary to themselves as company employees; subject to payroll taxes. But, any extra income – which is often referred to as profits or distributions, isn’t subject to self-employment taxes. Even if your business doesn’t generate a huge income, it can still result in some hefty tax savings. Deductible business expenses

6. Just as the owner of any other type of business entity, S-Corporation owners can deduct eligible business expenses, such as utilities, office supplies, rent and many others that are both ordinary and necessary. When taken full advantage of (an accountant can help you with this), these can lower your tax liability overall. Income allocation flexibility Income allocated to shareholders has more flexibility with an S-Corporation, for example, more income can be distributed to lower tax bracket shareholders, lowering the tax burden overall. Retirement plan contributions

7. Retirement plans can be established by owners of S-Corporations, including a Simplified Employee Pension (SEP) IRA, or a Solo 401(k), which opens up ample opportunity for some substantial tax-deferred savings. In some instances, tax savings may be available for C-Corps who on the advice of their tax accountant in Miami, choose to convert to an S-Corps. Making the change can help you avoid double taxation, whereby the business has to pay corporate taxes, and shareholders are required to pay personal taxes on dividends. Ultimately, working with a tax expert is the best way to know whether an S-Corp structure is right for you and your circumstances, and to ensure that you’re always compliant with tax regulations.