Question

Calculates the tax benefits of switching the business to a s corporation for each of the stakeholders involved and the business entity

For a s corporation lets say the company Is worth $100 million dollars and $17.5 million in revenue.

Bob owns 50% of the company

Mark owns 20% of the company

Tony owns 25% but his selling his portion of the company

Steve owns 5 %

tax benefits of switching the business to a s corporation?

Answer 1

S Corps are pass- through entities i.e. they pass through their income to the owners of the S corp rather than paying tax on S Corp income.

Where as a C corp has to face double taxation situation:

1. It first pay tax on the income earned by C Corp.
2. Then when it passes the income to the stake holder they are further taxed as income of stakeholders.

In case of C corp revenue left after taxing 17.5 M @ 21% will be 13.825 M which will be distributed to individual stakeholder in their stakeholding ration and will be further taxed @ 37.3 %,

	Revenue distributed	% Share	Tax @ 37.3%	Revenue after Tax
Bob	6.91	50%	2.57	4.34
Mark	2.77	20%	1.03	1.74
Tony	3.46	25%	1.28	2.17
Steve	0.69	5%	0.25	0.44
	Net Income left after double taxation			8.69

Where as in case of S corp revenue of 17.5 M will pass through and will be taxed @ 37.3 %.

Revenue distributed	Tax @ 37.3%	Revenue after Tax
8.75	3.26	5.49
3.5	1.31	2.19
4.375	1.63	2.74
0.875	0.33	0.55
Net Income left after tax		10.9725

There a net saving of 10.9725-8.69 M is anticipated i.e 2.29 M