How to form an S-corporation for Financial


With the rise of the sharing economy, small businesses have become a much more common sight. But what is a “small business”? A small business is simply a company that has less than $10 million in gross receipts. However, in order to avoid paying corporate income taxes (which are very high), many small businesses choose to operate through an “S-corporation structure.” An S-corporation is similar to a traditional C-Corporation but with one key distinction: It has pass-through taxation instead of being taxed as normal income. Because of this unique tax status, many people who want to start their own business ask questions like: “What is an S-corporation? How to form one? What are its benefits and disadvantages compared with other types of incorporation structures?” These questions are all worth investigating because forming an S corporation can have significant financial implications for you and your business!

How to Create an S-corporation Tax Structure

An S corporation is a type of corporate structure that allows you to avoid double taxation on your company’s profits. It also gives you the ability to make tax-deductible contributions to your employees.

An S corporation is a special type of corporation that has chosen to pass certain profit through directly to shareholders for tax purposes. This means that profits made by the business are passed through its owner(s)’ personal returns rather than being taxed again at the business level.

What Is An S-Corporation?

An S-corporation is a special type of corporation that’s formed by filing articles of incorporation with the state. It has the same tax treatment as a partnership and can be taxed as either a C Corporation or an S Corporation.

Why Would I Want To Set Up An S-Corporation?

  • Tax savings. An S-corporation saves you money on taxes because it’s not taxed at the corporate level. Instead, your business is taxed only once at the individual level when you file your personal income tax return.
  • Limited liability protection. Because an S-corporation isn’t a separate entity from its owners, any actions taken by a shareholder that cause harm to another person or company are usually held against the owner of the corporation as an individual and not against the corporation itself. This means that if one of your shareholders causes harm to someone else in your business.
  • Pass-through taxation model: In addition to limited liability protection for investors in an S-corporation, there’s also pass-through taxation where all revenues generated by sales/services rendered go directly into owner wallets without being taxed twice like regular corporations would be under traditional models which require double taxation upon profits being made before going into owner wallets again after all taxes have been paid out first on those profits.”

How Do I Get Started?

If you are planning to form an S corporation, there are several steps you will need to take.

Create a business plan

This should include:

  • an overview of your company and its goals
  • a detailed list of the products or services that you intend to offer
  • a description of your target audience

File articles of incorporation

This document will serve as the legal foundation for your company and include important details like its name, business address and purpose. Next, file an election to be taxed as an S corporation with the IRS by submitting Form 2553 with Form 1120S. You can also use this time period as a time commitment—it is necessary that all shareholders sign their tax returns before they will be accepted by the federal government.

It is important to understand the benefits and disadvantages

  • You can deduct 100% of the cost of your S-corporation. In addition, if you are married and file jointly with your spouse, this deduction applies to both spouses’ income.
  • You can deduct some of your personal expenses as corporate expenses. These include home office costs and travel expenses.
  • You can take advantage of certain tax credits in your individual tax return that you would not be able to claim as an unincorporated business owner (self-employed person).
  • You can avoid double taxation because only one level of self-employment taxes applies – at 15%. This means that your net income remains higher than what it would have been had you remained unincorporated but still allowed for reduction in self-employment taxes paid by incorporating into an S corporation form rather than being taxed as a sole proprietorship or partnership where there is no limit on how much could be paid into Social Security system for retirement purposes before any compensation received from business activity.


The decision to form an S corporation is a big one. If you are considering this option, it is important for you to understand the benefits and disadvantages of doing so. By thoroughly evaluating your situation, you will be able to make an informed decision about whether or not this type of business structure is right for you.

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