For 70 years, Whyte & Associates, Inc. has helped organizations from across the greater Rancho Cucamonga, Ontario, and Upland, California area start on the right footing. We have set teams like yours up for success! One of the ways we have accomplished this is with expert guidance on the right incorporation strategies. While there are many potential ways to structure your startup, the S corporation is among the most common. An S-Corp may also be right for you, should it align with your organization’s characteristics, needs, and future goals.
The IRS defines S corporations as corporations that pass income, losses, deductions, and credits to shareholders. These shareholders report such flow-through income and losses on their own tax returns. They are then liable for satisfying those tax obligations (based on their personal income tax rates as individual filers). The S-Corp name comes from operating under the S subsection of the IRS tax code.
S-Corps strike a balance; owners of small businesses may secure tax advantages while minimizing their risk exposure (via liability protection). S corporations largely avoid double taxation on their income (see above). They are responsible for some built-in gains and passive income as an entity; however, S-corp status largely avoids being taxed twice like other corporations. This is a “win” for many small businesses, because such double taxation can be quite burdensome for entities that may be small in size but mighty in their vision and goals.
There are many “eligibility” requirements, including the following:
As with other corporate structures, S corporations must also adhere to filing and compliance requirements and submit appropriate forms. Violating any requirements results in the loss of S-Corp status and may also have considerable tax implications for your organization.
Organizations commonly incorporate as an LLC and a C-Corp. LLC is attractive for those looking for simplicity in the setup and operation of their business. While taxes are levied against individuals, this approach can be limiting. C-corporations are more complex and flexible than the other structures mentioned here. It may be subject to double taxation (taxed as an entity and on dividends paid to members as personal income). Yet, operations can continue even after the departure of members. Unlike S corporations, multiple-share classes are allowed, and citizenship requirements for membership are nonexistent.
As you can see, each structure has both positive and potentially challenging considerations. Whyte & Associates, Inc. looks forward to partnering with you to provide the strong structure that supports the long, healthy “life” of your business or nonprofit. Call (909) 575-0080 to speak with one of our experienced professionals in Rancho Cucamonga, CA, today.
