What is an S-Corp or S-Corporation?

Answer:
So it's time to incorporate your new venture and

your having a hard time deciding which type of incorporation is right for you and your entity. Someone may have mentioned an S Corp at some point so now it's time to find out exactly what an S Corporation is and what are the pros of this type of incorporation.

An S Corp stands for a Subchapter S election with the IRS. I'm not 100% sure what the S in S Corporation stands for but I'm assuming it stands for Small Business. Unless you happen to be on Jeopardy then it's likely you will never need to know what the acronym is. What's important is to know how an S Corp will benefit you .

Benefits
You don't have to pay corporate income tax. You only pay taxes on the income that was distributed to the shareholders. So if you own 100% of the S Corp then you are only taxed for the profits you make instead of being taxed for the profits the company makes as well as the income you generate from the profits.   This is a biggy, a C Corporation is taxed twice and can be costly but there are certain qualifications a company must have to file for a Subchapter S status.

Qualifications
    You must have less than 100 shareholders.
    You must be a domestic company and shareholders must be US Citizens
    You must have only one class of stock

    If you meet these requirements then you can file for S Corporation status.

Distributive Share
When owning shares in an S Corporation it's important to realize the difference between salaries and share distribution. Share distribution is the profits your company makes minus the salary you draw. The salary you draw is subject to FICA tax where the share distribution is not. So you take a minimal salary, and distribute the rest of the profits.

Filing is easy, in fact there are dozens of companies that will do this for you. You may have your Business Attorney do this but it is usually much more affordable to have an online entity that specializes in incorporation do it for you. I think you can easily incorporate for under $500.


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