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What Are The Benefits of an S-Corp?
Brian Bailey • Sep 15, 2015
Advantages of Creating an S Corporation
What is an S Corporation?
An S corporation is treated by the federal tax system as a pass-through entity in the eyes of the IRS. To achieve this, your business must file Articles of Incorporation with the Secretary of State. Kentucky corporations are also required to file one copy of their Articles of Incorporation in the same county where the registered office is located.
Your company will then issue stock and the business will be governed as a corporation. The shareholders (those holding your stock) are the owners, but are protected from personal liability from the actions of the corporation. For instance, a shareholder’s personal property, bank accounts and other assets cannot be seized to pay off the corporation’s liabilities.
Income and losses are passed on to the shareholders. Each shareholder is responsible for the income or loss received by the corporation, on their own individual tax return. The S corporation eliminates double-taxation – once on the corporate level and once on the individual level, which happens with a regular corporation.
Advantages of an S Corporation
- Credibility – An S corporation has made a formal commitment to the business, which may appear more credible to customers, employees, partners, distributors, vendors.
- Protection of Assets – Shareholders are more protected than in other business structures (like a sole proprietor, a DBA, general partnerships or other corporation types) because their personal assets are protected from obligation to pay business debts.
- Better Characterization of Income for Shareholders – Tax benefits include the ability of shareholders to be employees of the business, to draw a salary, and receive dividends. This type of corporation can be set up to help owner-operators reduce self-employment taxes, while enjoying deductions for business expenses for the business.
- Easier to Transition – S corporations can be transferred more easily than partnerships or LLCs.
- Elimination of Double-Taxation – An S corporation isn’t taxed by the federal government on the corporate level.
Advantages of an S Corporation
- Allocation of Income and Loss is Less Flexible – Allocation cannot be set in an operating agreement. Instead, allocation is dictated by stock ownership and cannot be easily allocated to specific shareholders, since all stocks of an S corp are a single class of stock. The number of shareholders is also limited — to 100 — and no stocks can be owned by foreign entities. Certain types of trusts are prohibited from stock ownership, as are some other entities.
- The IRS Watches Closer – S corporations tend to be more closely scrutinized by the IRS, to determine if distributions of dividends and salaries are properly characterized. Incorrect classifications of these can lead to the loss of the compensation paid deduction and a higher employment tax liability. Mistakes in filing requirements, stock ownership and election, consent and notification can nullify the S corporation’s legal status as a corporation.
- Expenses for Corporate Formation and Ongoing Maintenance – You must secure a registered agent in Kentucky for the company, pay the registered agent’s fees, and pay the cost to properly file the Articles of Incorporation. There may also be annual report and other tax fees.
If you have questions, call us. We can sit down to determine if a Kentucky S corporation is the best option for your business.
https://youtu.be/821a3P4fK84?t=8165 Check out our latest Joe Show Appearance here.
Check out our latest Joe Show appearance here. Brian discusses 5 star reviews, expert witness costs & why Pete rose should be in the Hall of Fame.
Check out Patrick's latest Joe show appearance here. https://youtu.be/npC-LTJ6dcE?t=12677
https://www.youtube.com/watch?v=86DwHBCoLp0#t=207m27s If the link doesn't automatically take to to the video . Please cut & Paste to you browser Hey everyone out there now you can see us during our appearances on the Joe Show. Click on the link here to see why my momma always said I had a face made for radio. And for my law school peeps listen close for a painful law school memory when we discuss the "Absence of Malice"
Our firm has a long history in Boyle County
Parents who are divorced, separated, never married or live apart and who share custody of a child with an ex-spouse or ex-partner need to understand the specific rules about who may be eligible to claim the child for tax purposes. This can make filing taxes easier for both parents and avoid errors that may lead to processing delays or costly tax mistakes. Only one person may be eligible to claim the qualifying child as a dependent. Only one person can claim the tax benefits related to a dependent child who meets the qualifying child rules. Parents can’t share or split up the tax benefits for their child on their respective tax returns. It’s important that each parent understands who will claim their child on their tax return. If two people claim the same child on different tax returns, it will slow down processing time while the IRS determines which parent’s claim takes priority. Custodial parents generally claim the qualifying child as a dependent on their return. The custodial parent is the parent with whom the child lived for the greater number of nights during the year. The other parent is the noncustodial parent. In most cases, because of the residency test, the custodial parent claims the child on their tax return. If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income. Tie-breaker rules may apply if the child is a qualifying child of more than one person. Although the child may meet the conditions to be a qualifying child of either parent, only one person can actually claim the child as a qualifying child, provided the taxpayer is eligible. People should carefully read Publication 504, Divorced or Separated Individuals to understand who is eligible to claim a qualifying child. Noncustodial parents may be eligible to claim a qualifying child. Special rules apply for a child to be treated as a qualifying child of the noncustodial parent. The custodial parent can release the dependency exemption and sign a written declaration or Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent for the noncustodial parent to submit with their tax return. This also applies to some tax benefits, including the child tax credit, additional child tax credit, and credit for other dependents. It doesn’t apply to other tax benefits, such as the earned income credit, dependent care credit or head of household filing status. For More information: Check out IRS Publication 501, Dependents, Standard Deduction, and Filing Information Whom May I Claim as a Dependent? If you have questions or need help navigating which parent gets to claim the children for tax purposes. Feel free to Give us a call at 859-236-8888.
It is with mixed emotions that we announce our very own justin Johnson has decided to take a position working as Assistant Commonwealth attorney for the 50th Judicial Circuit. We are sad to see him go but are comforted with the fact that we know he will bring his integrity and brilliance to this next chapter of his life and that maybe in some small way we contributed to that. Also we are proud to know that he will in a very real way be carrying on the tradition of this firm's founder Hon. George M McClure III by serving this area while ensuring both the victims and accused receive justice and fair play.
You may want to put on your shades. Patrick thinks the future looks that bright for the Danville School District
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Both Patrick & Myself come from a long line of men and women who have bravely & honorably served this country. Both of our fathers George M McClure III & John L Bailey. Our Grandfather’s Dr. George M McClure Jr., Clarence E. Bailey and Claude L. Stacey. As well as many of our aunts, uncles and cousins have all bravely and honorably served this country some of them came home to take there place in society never really discussing their service nor asking for any special treatment because of it. Some came home in a box. draped in a flag, having paid the ultimate sacrifice. I never had the honor of serving myself. I had intended to serve. I even made the trip from Rockford Illinois to Great Lakes Naval base to take the ASFAB which I actually did very well on. However the day before I was going to sign my enlistment papers my father sat me down and said these words to me that forever changed the course of my life. He said “Son our family has done its fair share for King & Country go to college” I took my dad’s advice and I have honestly had a life that is greater than I could have ever imagined. But I have always felt a little guilty that I didn’t serve like most of the men in my family chose to do. Memorial Day is always bitter sweet for me, because I realize that I am in a very personal way the recipient of the sacrifices made by Generations of my family that served sacrificed and died so that I wouldn’t have too. I know I’m not the only one who has benefited from that type of sacrifice I know many of you out there reading this have stories that are very similar to mine. So tomorrow while we are all enjoying our hot dogs, hamburgers and mom’s apple pie let’s all take a moment to remember the ones that sacrificed so that we wouldn’t have too. Have a Happy and Thankful Memorial Day. ---- Brian
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