S-Corporations

An S Corporation enjoys some unique benefits when it comes to federal taxes. Mainly, it can avoid being taxed twice - once to shareholders and again to the corporation by electing for S Corp status. Once accepted, the company is exempt from federal income taxes except for certain taxes on capital gains and passive income. Shareholders only need to include their share of the company's separately stated items of income, loss, and credit, and a share of nonseperately stated income or loss on their tax returns. While such status can be a great benefit to a business, business law attorneys can help navigate through some of the intricacies of tax law so as to avoid potential issues and problems.

Qualifications for S-Corporation Status include:

• Must be an eligible entity
• Must not exceed 100 shareholders
• Shareholders must be U.S. citizens or residents
• Must have only one class of stock
• Profits and losses must be proportionately allocated to shareholders according to each one's interest in the business

Some issues may arise when a company that previously held C Corporation status converts to S status. In certain circumstances, the business may have to pay income taxes on profits they made when it operated as a C-corporation. Additionally, owners of an S-Corporation must understand that the company corporation will not be taxed on profits, but the owners themselves will be taxed on their proportional shares of the company's profits. Additional taxes need to be paid in certain states and areas. Many of these issues can be overcome with the aid of a lawyer trained in the specifics of tax and corporate governance law.

In California, for example, S-Corps must pay a franchise tax of 1.5% of net income. Other places, such as New York City, require that S-Corps pay full corporate income tax at a rate of almost nine percent. S-corporations must file income tax using the 1120S s corp form, estimated tax using a 1120-W form, and employment taxes using 941 and 940 forms. Shareholders must file taxes using a separate form. An attorney is often necessary to ensure that such matters are handled accurately and to avoid legal complications.

Does your business need help with S-Corp issues? A lawyer can help facilitate the process. Contact an S-Corporation Attorney today!