S Corporation Advantage #1: Legal and Accounting Benefits

S Corporation Advantage #1: Better Legal & Accounting Benefits

S corporations do more than save their owners income and payroll taxes. S corporations also provide some general accounting and legal liability benefits

S Corporation Limited Liability

As compared to a sole proprietorship or a general partnership, an S corporation should limit your business liability because to create an S corporation you'll first have to form a limited liability company or a corporation.

An S corporation, therefore, should reduce the risks to the business's owners bear. The general rule is that a corporation's shareholders are not liable for the corporation's debts merely because of their ownership. (Note that this same rule is also true of a limited liability company's owners, who are called members.)

Tax Accounting Easier for S Corporations than for LLCs

Another general advantage of an S corporation compared to a partnership or an LLC that's treated as a partnership is that the tax accounting should usually be easier for an S corporation than for a partnership.

Partnerships complicate tax accounting in ways that are beyond the scope of this short article. But just to give you an idea of the sorts of problems they create, a partnership in effect requires that another set of bookkeeping records be kept--records in addition to the regular books kept for tax accounting.

Advantages of So-called "Disadvantages"

Let me also make this perhaps-obvious point: Some of the factors that on other pages at this website I describe as disadvantages of an S corporation aren't really disadvantages once a business reaches a certain size or complexity.

For example, after a business's financial affairs get complicated, you need good accounting even if the good accounting costs you more money.

And after a business begins to pay significant income tax bills, you should save money by using good accountants and attorneys even if those professionals charge high fees.

Finally, if you're already doing payroll for other employees, adding yourself as the owner to the payroll doesn't increase bookkeeping headaches much at all.

Accordingly, some of the factors that you might sort of consider as disadvantages of an S corporation are disadvantages only for very small S corporations-say S corporations with less than $50,000 in annual profits or S corporations with only a single owner-employee.

Back to list of S corporation advantages and disadvantages

Tools for Saving Taxes

One of the most powerful tactics for saving small business taxes is maximizing your deductions. You can literally save thousands in taxes each year.

Using an S corp for your real estate investing? To maximize savings, you need to minimize the salary paid to shareholders. But this decision is tricky.

Tax laws provide active real estate investors with giant tax planning loopholes. A little upfront planning on your part could save you thousands a year...