What Are The Benefits Of Electing An S Corporation?
One of the major reasons people elect for an S Corporation status is because it allows the owner(s) or shareholder(s) to apply the corporation’s income and loss on the individual tax returns. The election of an S Corporation is favored under the following circumstances: 1. The shareholder(s) earn less than maximum amount subjected to the Social Security tax ($90,000 for 2005). 2. The shareholder(s) actively participate in the company. 3. The corporation plans to distribute most of its annual profits to its shareholder(s). The reasoning for above is that a corporation can pay the owner a reasonably small salary, which is subjected to Social Security and Medicare tax, and then the corporation can pay a large distribution of its profits, which are not subject to Social Security and Medicare tax (on the Schedule K-1 form. This may save the shareholder(s) up to 15.3% on Social Security and Medicare taxes.
