Opening a small business is a big decision, especially for those who were working 9 to 5. Once you decide to start a business there will be many options to choose in advance like which location to start your business? What business structure is good for you?
Forming a corporation is helpful because it protects your personal assets, offers tax deductions, and establishes a business with a sense of authenticity. There are some other choices [C corp., S corp., and LLC] with their individual advantages and drawbacks. In this post, let’s learn what is a Sub S company? What are its benefits?
A sub S company is a kind of corporation, which draws its name from the IRS tax code subsection S. Business owner has to start C-corp., before filing for sub S company in the state, where business is located.
S corp. and C corp. are similar in many ways but the ambiguous income and tax rules set both apart. With S corp. you gain lots of business credibility and the benefits given below.
S corp. does not have to pay corporate-level taxes. Income or losses get reported on the owner’s personal tax levels. This avoids double taxation problem, which affects the C corp. An individual shareholder can reduce tax liability by balancing other income with S corp. losses. Another caveat is that shareholder working for the company has to be paid fair wages as per IRS.
S corp. is regarded as a unique entity. Owner’s personal asset and business are separate. It means the owners are not liable for reimbursement of debts or action unless they signed a personal guarantee.
Reduced taxable gains
If you intend to sell your business started as side project then altering to S corp. is attractive. Owner’s taxable gains from selling S company are less than C corp. sale.
Evade self-employment taxes
S corp. owners are regarded as company employees and not owners. Therefore, they can skip from self-employment taxes, which LLC members have to pay.
Unlike LLC, S company has a limitless lifetime. Even if you leave, the business will exist consistently without any hassle.
Easy to transfer
If you need to transfer S company ownership, due to some specific reasons then it is easy.