Incorporating can have some great benefits for a small business owner. However, it is important to understand the different types of corporate formations and whether or not they will meet your personal business needs. Here are some things you should know about an S corp.
What Is an S Corporation?
Organizing your business as an S corporation can help you to avoid double taxation. Whereas a C corp will result in the business paying taxes on the full profits it makes, an S corp allows the owner to report profits and losses on his or her personal tax return. So what benefits do shareholders get? The company will pay them a reasonable wage.
Is This the Right Business Formation for You?
There are a few factors that will determine if this is even feasible for your business:
- You must have 100 or fewer shareholders
- All shareholders must be individuals (no corporations or partnerships)
- Only domestic corporations qualify
- You must be operating a qualifying business type (for example, an insurance company cannot register as an S corporation)
Becoming an S Corporation in California
Keep in mind that California State Tax laws may place some restrictions on the benefits of forming an S corp. You still get the benefits when you file your federal taxes, but California taxes S corporations at both the shareholder and corporate levels.
To discuss more incorporation possibilities for your small business, contact Pokala Law APC today by calling 1-844-695-1487, or request an appointment online. We’re San Diego’s small business law practice.