You might be ready for a small business floe-thru corporation aka an S-Corp without even knowing it yet. And it could be a game changer for your business.
Let me break it down.
The S-Corp (short for S-Corporation) is a recognized legal business structure by the IRS. This status allows you to be taxed like a sole proprietor instead of a corporate tax structure. This is favorable to the business owner because the income generated by anS-Corp will flow through to the personal income tax returns of the shareholders, and the S-Corpgenerally doesn’t owe any tax liability on the Federal side (states will vary!).
The basic requirements for meeting S-Corp eligibility:
- Be a domestic corporation (US only)
- Have only allowable shareholders
- May be individuals, certain trusts, and estates and
- May not be partnerships, corporations or non-resident alien shareholders
- Have no more than 100 shareholders
- Have only one class of stock
- Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
If you meet all these requirements AND your business earns 6 figures, it may do you right to elect S-Corp status asap – if you’re not convinced, here are other helpful reasons:
No Corporate Tax: This is the biggest benefit! The profit and losses of your business would pass through the owners personal income tax helping you avoid double taxation that a regular C-Corp would impose on it’s owners.
Reduce Taxable Gains: Some people sell their business as part of their retirement strategy – filing as an S-Corpreduces your taxable gains, meaning more money in your pocket once you decide to sell.
Write off Start-up Losses: During the first years of a business, it’s expected that you’ll have many expenses and losses as most new businesses are not profitable in their first 3 – 5 years. These losses can offset your personal income and save you thousands in income taxes – C-corporations wouldn’t have this benefit as the business losses would be locked within the company and wouldn’t “flow-thru” to the owners’ personal tax returns.
Changing your business structure is a crucial decision for the growth of your business – it matters greatly!. How you pay your taxes in the beginning years can set the tone for success afterwards. If you are interested in learning deeper about S-incorporation, click here to learn more, straight from the IRS’ mouth.https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations:
To more money in our pockets,
P.S. If you are a 6 figure proprietor or LLC thinking you may be ready to elect S-Corp status and potentially save $$$ in taxes, then let’s talk! Reply to this email with the words FORMATION so we can get the ball rolling.
P.P.S Every S-Corp needs a CFO – yes, that means an account pro who handles all your numbers including bookkeeping, tax filings, payroll, financial reporting, tax strategy planning, and is there all year long when you need her. Hit REPLY with the word CFO if your S-Corp business is ready to level up.