Advantages of setting up an S corporation

If you’re thinking about setting up an S corporation, here are some of the advantages:

• Lower taxes. The double taxation of C corporations is eliminated in an S corporation, so profits and losses flow through to the owners and are taxed only once, at the individual level. Suppose a shareholder’s share of net income (after all expenses) is greater than his or her share of distributions from the company. In that case, those earnings can be distributed to him or her as dividends without incurring additional tax liability until they’re withdrawn from his or her account. If he or she receives $15,000 in dividends but has contributed $7,500 toward management expenses during that year and has not received any other distributions from the corporation (which could also be considered taxable income), his/her taxes will be calculated as follows:
• Lower startup costs. A sole proprietorship generally requires only filing one simple form with your state government—the Articles of Organization and purchasing business licenses. In contrast, an S corp needs filing fees for articles with both federal and state governments plus additional fees for federal tax identification numbers (TINs). New businesses must start on a solid legal footing so they can focus on growing their business instead of worrying about legal issues down the road.
• Lower administrative costs: A small company may have less than 5% of total operating expenses; however, small businesses often find themselves burdened by high administrative costs due to having too many employees handling clerical tasks such as payroll administration rather than focusing on higher-value work resulting in financial success for their companies’ futures