Question

Based on tax research, explain why a client should choose an S Corporation. Consider referencing appropriate tax code and regulations.

Answer 1

Solution :

S Corporation is a form of of entity arising from the Chapter 1 Subchapter ‘S’ of the IRS code.

S corporation is a flow through or pass through taxation concern which allows the taxation of profit of the shareholders at their individual level and no business Profits are taxed at business level.

There are many advantages of selecting S Corporation over other forms of entity types.

Before one changes his / her preference to S Corporation from the existing one he / she must know the tax implications of the entity form they are going to enter.

S Corporation has the basic tax advantage for its shareholders and i.e. the tax to its shareholders is taxed at their individual level instead of at both levels i.e. Corporate & individual like C Corporation which double taxes the benefits of its shareholders.

Therefore shareholders enjoy single taxation effect and there is no federal income tax levied at the corporate level. That’s why S Corporation is favoured by many businesses for its Single Taxation.