More than 600,000 new businesses are formed in the United States each year. Unfortunately, not all of these have staying power in their industries.
One of the most important attributes of running a successful business is properly managing your business taxes.
However, not everybody understands the benefits of an S Corp election. We’ve put together a guide that outlines everything you need to know. Let’s take a closer look.
Pass-Through Taxation
One of the major benefits of electing an S Corp is that it allows pass-through taxation. This means that the corporation’s income, losses, and deductions are reported on the individual shareholders’ tax returns as opposed to filing a separate corporate return.
Therefore, this provides your business with potential savings in terms of tax liability.
Asset Protection
Many people overlook the importance of asset protection, but it is an essential part of running a business. When you elect an S Corp, you can protect your personal assets from creditors should your company face financial difficulty or a lawsuit.
This way, if something were to happen to your business, you would have some peace of mind knowing that all of your hard-earned savings and possessions are safe.
Flexibility in Allocations
When it comes to distributions, the S Corp election allows for flexibility in allocations. This means that you can decide how much of your company’s income each shareholder will receive, as well as how much of their own salary they will take home.
This gives you control over your tax burden and helps ensure that everyone involved is treated fairly.
Increased Retention of Earnings
As you might guess, an S Corp election also provides additional advantages in terms of retaining profits. This type of corporation allows you to retain more profit than would be possible with a standard corporate structure.
As such, it provides your business with a greater ability to grow and succeed in the long run.
Reduced Self-Employment Taxes
Electing an S Corp can reduce self-employment taxes. Since the income of your business is reported on your individual tax returns, you will not have to pay self-employment taxes on the company’s income.
This can be a huge advantage that allows you to keep more money in your pocket.
Cost Savings on Health Insurance Premiums
Additionally, electing an S Corp can provide you with cost savings on your health insurance premiums. Although S Corp owners are not allowed to participate in Section 125 plans and reap the benefits of tax-free deductions, they can benefit from an S Corp election by allowing the company to pay the health insurance premiums, which then becomes taxable income on the owner’s W2.
Don’t Overlook an S Corp Election
Overall, electing an S Corp election can be very beneficial for your business in terms of tax savings and asset protection. If you’re considering making this move, make sure to do your research and consult a qualified professional to help you through the process.
This way, you can make an informed decision that best fits your company’s needs. Looking for more information on how we can help? Feel free to reach out to us today to see what we can do.
