S-corporations are business that have made an “s-election” under the Internal Revenue Code to be taxed as a small business corporation. The s-corporation designation is a tax description rather than a legal description. Certain corporations and limited liability companies can be taxed as s-corporations.
One of the biggest benefits of being a s-corporation is that the entity is not taxed on most types of income. Instead, the income is passed-through to the owners of the company to be included on their personal tax returns. Also, in certain circumstances there is the opportunity to save of self-employment tax.
There are some strict requirements that companies have to follow to qualify and maintain s-corporation status including a limitation on the number of shareholders, the types of shareholders, the allocation of income, and the distribution of funds and other assets from the company. It is important to have bylaws and operating agreements drafted properly so that the company is not disqualified as an s-corporation, which would cause a second level of taxation.
Elliot has worked with s-corporations as both a business tax accountant preparing tax returns and as an attorney planning, designing and drafting documents for the business.