As your company gets larger and starts to earn more profits, it is usually a good idea to think about setting up a corporate structure. And one of the most popular is the S Corp. After all, you can potentially gain some nice tax benefits.
But of course, the rules can get tricky – and you will have to take on more expenses.
So to make this process easier, there are certain factors to keep in mind. Here’s a look:
Limited Liability: This is definitely a big deal, as litigation is ubiquitous. With an S-Corp, the shareholders are only liable for the amount of their investment in the company. As a result, this makes it easier to raise capital.
Pass-Through Entity: The S-Corp itself is actually not subject to taxes. Rather, the shareholders who receive the profits are taxed.
Example: Let’s say your company has four shareholders, which each having a 25% interest. Last year, the profits came to $100,000. This means that each shareholder will report income of $25,000 on their personal returns…