S corps are state income tax exempt. If your S corporation had an income of $100,000 in the past year, this amount will be assigned to you and any shareholders. You’ll pay federal taxes on your portion of the income. Regardless of income, you won’t owe state income tax.
In Florida, only C-Corporations pay corporate income tax. S-Corps are pass-through entities. Limited liability company (LLC), Partnership, and Sole Proprietorship are also pass-through entities.
All corporations in Florida pay a 5.5% income tax on net income over $50,000. Corporations owing over $2,500 annually must make estimated tax payments.
The main difference between an S-corporation and C-corporation is how they are taxed. You can change your corporation’s status to an S-corporation by filing Form 2553 with the IRS.
S Corp Taxation Explained
An S corporation (S Corp) is not taxed at the business level because it is a pass-through tax status. The S corp income passes through to the owner’s individual tax return as salary and distributions. The owner’s salary pays employment taxes and income tax, while distributions only pay income tax at the shareholder level, which leads to S corp tax savings.
Corporate taxes are based on taxable income after expenses have been deducted. The corporate tax rate in the United States is currently at a flat rate of 21%.
Double taxation refers to how C-corporation income is taxed twice: at the corporation level and again as dividends. S corps avoid this by passing their income through to their business owners directly as reported on a Schedule K-1.
To file for S corp status, your business must be a domestic corporation, meet specific requirements, and file an election form with the IRS.
The S corporation does not pay taxes on net income, but it is required to prepare a Form 1120S tax return for the IRS.
The benefits of starting an S-corporation in Florida include pass-through taxation, limited personal liability, and potential tax savings.
An S-corp provides more tax advantages than an LLC in Florida, allowing owners to take a reasonable salary and profit without paying extra income tax.
Factors to consider before starting a Florida S-corp include business structure, number of owners and shareholders, and profit and loss distribution.
Key benefits of a Florida S-corp include personal asset protection, pass-through taxation, and easier fundraising ability over sole proprietorships. However, forming an LLC or C-corp first is necessary to later elect S-corp status with the IRS.