What Are the Tax Advantages of an S Corp?

S Corporation Tax Advantages

• An S corporation (S corp) passes all profits and losses directly to shareholders, avoiding double taxation.
• The main S corporation tax advantage is avoiding double taxation. S corps only pass profits to shareholders as income. So earnings are only taxed once.
• S corporations allow tax savings like reducing payroll taxes.

Risks and Considerations of S Corporations

• Some states require extra S corp fees and taxes.
• Shareholders of S corporations report the flow-through of income and losses on their personal tax returns.
• An S Corporation election allows avoiding taxes on a portion of the business profits and can lower taxes by reducing the owner’s salary.

Avoiding Double Taxation with S Corporations

• To avoid double taxation, a corporation can file a special election with the IRS.
• S corporations are considered pass-through entities where all profits the company receives are passed directly to its shareholders, avoiding corporate income tax.