What Is An S-Corporation?

• What Is An S-Corporation?
• Requirements And Considerations Of S-Corporations
• S Corporation Benefits
• Filing As An S-Corp
• How Triple B World can help you?
• FAQ

What is an S-Corporation? 

An S-Corporation is not a business structure or entity like a corporation or LLC, but rather a tax classification that can be applied for by either an LLC or corporation that meets the eligibility criteria. It can provide savings on self-employment taxes for LLCs and avoid double taxation for C corporations.

However, a non-U.S. international person is not able to select S Corporation tax status or become a partner in an S Corporation.

If you are interested in forming an LLC with S Corporation status, our service can assist you with the process, as well as offer additional support for running and growing your business while complying with state and federal laws. For more information on S Corporations, please see our “What Is an S Corporation?” page.

Requirements And Considerations Of S-Corps

Before discussing the process of forming an S-Corporation, it is important to understand the requirements and limitations for electing this tax classification. According to the IRS, a business must meet the following criteria in order to qualify for S Corporation status:

• U.S. Corporation or LLC: Be a domestic corporation or LLC
• No more than 100 shareholders/members: Have no more than 100 shareholders or members  (“shareholders” is the term for owners of a corporation, while “members” is the term for owners of an LLC)
• Only one class of stock: Have only one class of stock
• Must be an eligible corporation: Not be an ineligible corporation, such as certain financial institutions, insurance companies, and domestic international sales corporations.
• No shareholders/members that are partnerships, corporations, or non-resident aliens: Have only allowable shareholders or members, which includes individuals, certain trusts, and estates. The shareholders may not be partnerships, corporations, or non-resident aliens. A non-resident alien is an alien who has not passed the green card test or the substantial presence test.

S-Corporation Benefits

There are several advantages to filing as an S Corporation, particularly for C Corporations.

Below are some of the main benefits:

Advantages of an S-Corporation Over a C-Corporation

Pass-Through Taxation

One disadvantage of traditional C Corporations is “double taxation,” where profits are taxed at the corporate level and again when they are distributed to shareholders as dividends. With an S Corporation, profits are only taxed at the individual level, similar to how sole proprietorships and general partnerships are taxed. LLCs are also taxed this way unless they choose to be taxed as a corporation.

It’s worth noting that the corporate tax rate has been lowered to 21% under the Tax Cuts and Jobs Act of 2017, so the impact of double taxation may not be as significant.

It is strongly advised that you consult with a qualified tax professional, such as a reputable accountant, to determine the best course of action for your business and specific situation.

Writing Off Losses

S Corporation owners can write off the company’s losses on their personal income statements, similar to how profits pass through to them. This can help offset income from other sources and can be helpful if the corporation loses money in the early years. However, it’s important to be aware of the IRS’s shareholder loss limitations.

Qualified Business Income Deduction

Under the Tax Cuts and Jobs Act, S Corporation owners may be able to deduct up to 20% of their qualified business income. This deduction is not available to C Corporation shareholders. Qualified Business Income (QBI) is essentially your share of the company’s profits, or the “net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.” The IRS website has more information on what is and is not included in QBI.

Filing as an S-Corp 

To apply for S Corporation status, you must first establish an LLC or corporation, if you have not already done so. Then, you must file an election form with the Internal Revenue Service (IRS).