Texas Legal Entities
S Corporation Structure
S Corporations provide owners with limited liability protection and offer the tax benefits of a partnership. Most capitalists have two main concerns when starting a company: having business profits taxed on their individual tax returns and protecting personal assets from business claims. In the past, an S corporation was the only option for entrepreneurs who wanted the above structures. However, owners now have the option of establishing limited liability companies, or LLCs. While LLCs are very popular, there are still ways when a business can benefit when organized as an S corporation.
An S corporation is a normal corporation that has chosen to be taxed as an S corporation. Normally, a company would be taxed as a C corporation meaning the company itself is taxed on profits. The owners only pay individual income tax on revenues they earn from the company in terms of salary, bonuses, or dividends.
All of business profits from an S corporation go directly to the owners, and the profits are reported on their personal tax returns as in the case of sole proprietorships, partnerships, and LLCs. The S corporation is not responsible for paying income tax itself.
Most states follow this federal pattern in regards to taxation of S corporations. This means a corporate tax is waived in favor of taxing the business’s profits on the shareholders’ personal tax returns. However, several states tax an S corporation similar to a regular corporation. To find out how an S corporation is taxed in a particular state, the tax division of the state treasury can be consulted.
If you would like more information regarding an S corporation, contact
Texas Legal Entities at 512-472-2431 today.
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