The big advantage is the tax benefit: not having to pay federal taxes at the entity level.However, it is liable on the corporate level for taxes on specific built-in gains and passive income.Īdvantages and Disadvantages of S Corporations Advantages of Registering as an S Corp
This gives it some special tax benefits under 2017’s Tax Cuts and Jobs Act. The key characteristic of a corporation filed under Subchapter S: It may pass business income, losses, deductions, and credits directly to shareholders, without paying any federal corporate tax-making it something known as a pass-through entity. S corporations get their name from Subchapter S of the Internal Revenue Code, under which they’ve elected to be taxed. LLCs aren’t subject to the same Internal Revenue Service (IRS) rules governing the number and type of members, who are typically sole proprietors or small groups of professionals. S corporation shareholders must be individuals, specific trusts and estates, or certain tax-exempt organizations.Both S corps and LLCs are pass-through entities, meaning that they don’t pay corporate taxes, and both offer limited liability protection for their owners/principals.Requirements of an S corp give a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership.A limited liability company (LLC) is another.
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