The S Corporation is a form of corporation that is particularly attractive to self-employed individuals and small businesses.  The S Corporation status is obtained by election with the IRS through filing a Form 2553.  Income from an S Corporation is passed through to the shareholders and filed on their individual returns, eliminating the “double taxation” of a C corporation.

The S Corporation structure offers advantages to the self-employed individual:

• Full personal asset protection of a corporate structure
• Elimination of double taxation
• Ability to reduce employment taxes - Social Security and Medicare
• Better expense deductions than a sole proprietor
• Take profits out of the company

Disadvantages of an S Corporation are:

• Limited fringe benefits
• More paperwork (same with any corporation)
• Rules regarding who shareholders may be
• No retained earnings in the business

We explain all of these points in greater detail in additional subject matter below. Also review the options of a Limited Liability Company and a C Corporation.

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