Starting your own business can be a time of great excitement. You've probably dreamed and planned for this moment for some time, and to have it finally arrive can be quite thrilling.
Still, there are likely some decisions left for you to make. One of the big ones might be how you choose to incorporate it. There are different types of ways for businesses to incorporate in the United States, and they have their share of pros and cons.
For example, have you considered incorporating as an S-Corp? The benefits of S-Corp for business are numerous. If you're not familiar with what they are, read on, and we'll walk you through what you need to know.
A lot of small business owners don't know the difference between an llc vs. s corp incorporation. To be fair, there are a lot of similarities.
One of the main benefits an S-Corp and LLC can provide is the protection of your assets. The owners of an S-corporation have limited liability protection under the law, regardless of the tax status of the business in question.
That means your personal assets as a business owner are shielded from any sort of legal situation your business might get into.
Someone couldn't go after you personally for something that the business did wrong. That means you are shielded against the claims of business credits while signing contracts and during litigation, if such a thing were to occur.
Another benefit of an S-corporation? The manner in which a corporation owner can derive payments. This form of incorporation allows an owner to receive both salary and dividend payments, which can result in a lower tax bill at the end of the day.
This is due to the fact that dividends do not have to be taken into consideration under the self-employment tax. When passing income to shareholders, an S-corporation can also deduct the cost of these dividend wages.
You might need a professional to help you determine the difference between salary and dividends. The IRS watches these kinds of transactions very closely, and you don't want to fall on the wrong side of the law.
Big organizations and corporations are taxed both at the corporate level and the shareholder level. That means money that passes through these businesses see a lot of that money go to taxes.
Those who run S-corporations don't have to worry about this, as tax credits, deductions, and losses are passed through to owners and not taxed at the corporate level. These are 'pass-through' organizations and tax-entities.
At the end of the day, that means more money for you as a business owner and less money that has to go to the government.
There are many benefits of S-Corp incorporation that small business owners should consider. While other forms of incorporation have their own benefits, setting yourself up as an S-Corporation might be the best way to go.
Need more help getting your business set up properly? Check out my blog for more.