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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16547
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I want to confirm the benefit of becoming an S corp verses

Customer Question

I want to confirm the benefit of becoming an S corp verses C corporation for tax benefits and liability. I am incorporated in Vermont as a PA.
Submitted: 3 years ago.
Category: Tax
Expert:  Megan C replied 3 years ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question, and thanks for using JustAnswer.com. An S Corporation does have some distinct benefits over a C-corporation, especially for someone who has a small business.

Under the S corporation, you are taxed on your income on your personal tax return. This mean you are taxed at your own personal marginal tax rate. The entire profit is taxed, therefore any dividends you receive from the corporation will not be taxed again. This differs from the C corporation, where you pay tax at the corporate level and then pay tax again on dividends you receive as a shareholder.

In an S Corporation you have to pay yourself a reasonable salary. What is reasonable depends on your business and your involvement in the business. You will pay employment taxes on your salary, but not your entire profit. With the S Corp the IRS does not want your salary to be too low, because then you wouldn't be paying the correct employment taxes.

In a C Corporation you don't have to take a salary, and the IRS does not like to see large officer salaries from a C Corporation because you are effectively shifting income from the corporation to yourself, which could be paid at lower tax rates.

A good article on this topic can be found, HERE.

Please let me know if you have further questions about this matter. Thanks again for using JustAnswer.com and have a happy, and safe, 2013.

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You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

Expert:  Megan C replied 3 years ago.
Thanks for allowing me the opportunity to help you. Please let me know if I can be of any further assistance to you in this matter. Also if you ever need anything else in the future please Simply enter "MyVirtualCPA" in the subject of your question Thanks again for being a JustAnswer customer