If your work as a licensed professional, such as an attorney, CPA, speech therapist, doctor, or architect, you must incorporate yourself as a professional corporation or P.C. Moreover, you may want to learn more about a professional corporation taxed as an S corporation to reduce taxes.
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Are You Subject to Double Taxation?
When you set up a business as a professional corporation, your firm is treated, tax-wise, as a “C” corporation or traditional corporation. That means you are subject to double taxation. The entity is taxed as well as the shareholders on their individual tax returns.
If you want to avoid the complications associated with double taxation, setting up a professional corporation taxed as an S corporation is a good move.
I can help you establish your P.C. as a sub-chapter S so you won’t be slammed with double taxation.
Contact Me for Further Details
Double taxation can impact what you earn. That is why you need to get sound legal advice about the tax treatment you choose for your professional corporation. Contact me at email@example.com anytime to receive the legal advice you need to prosper as a start-up or SME.
The following article will provide you with more information about setting up your business as an S corporation and why it may be beneficial.
Why Is a Professional Corporation Taxed as an S Corporation a Good Idea?
A professional corporation taxed as an S corporation realizes a number of benefits. The type of small business designation is elected by submitting paperwork to the IRS.
Some of the Benefits
An S corporation can provide you with the following advantages:
- You are not subject to corporate taxation. Instead, the profits and losses of a business with S corporation status pass through to the owner of the corporation, much like they do for a limited liability company (LLC), sole proprietorship, or partnership. While you will still file your tax form for your corporation, your taxable earnings will appear on your individual tax return.
- You can reduce your taxable gains by electing S corporation status. Maybe you plan to sell your business when you retire. Therefore, electing subchapter S can be a good move if you want to reduce taxable gains when the business is sold.
- Losses are directed toward your income, not tied in with your business. As a start-up, you can experience losses on a greater scale. Therefore, by choosing to be an S corporation, you can lessen the impact of these losses. The losses can be offset by what you make in personal income.
- Liability protection. While you do enjoy some liability protection, you still are responsible for the actions you take. Nevertheless, you can avoid the possibility that someone could sue you for your home and car when you choose subchapter S. Owners are only responsible, fiscally, for the investments they make into the business.
- You don’t have to pay self-employment tax, like a sole proprietor or a partnership. Therefore, you don’t have to worry about setting aside the money to comply legally.
Now that you know some of the benefits of subchapter S, let’s look at a couple drawbacks.
Why a Professional Corporation Taxed as an S Corporation May Sometimes Be a Drawback?
While the benefits of a corporation taxed as an S corporation sound great, you still should review some of the disadvantages. For example, it usually is much more difficult to attract venture capital as an S corporation than as a traditional C corporation. Also, you can only issue one class of stock, which reduces your control when it comes to making money.
Yes, it is true. You will enjoy more profits and reduced taxation. However, your primary purpose may be to aggressively obtain funding or to increase your ability to make money. If that is the case for you, speak to a top legal firm to explore your options in this respect. Book a call to speak to us here: http://molaeilaw.com/start.
If You Want Your Professional Corporation Taxed as an S Corporation, What Are the Steps?
A professional corporation taxed as an S corporation must file the file tax documentation and include certain details, as follows:
- Apply on IRS Form 2553. This form provides the IRS the details about a corporation requesting S corporation status.
- Include the Details. To complete the form, you need to include the employer ID or EIN of the business and name and address of the company. You also need to add the state of incorporation and the date. Select the tax year for starting the election, and note the shareholders who have consented to the election.
Subchapter S companies are limited to 100 shareholders, or can only issue that many shares of stock.
What Is the Filing Deadline for a Professional Corporation Taxed as an S Corporation?
Typically, the filing deadline for a professional corporation taxed as an S corporation should not be over two months and 15 days after the start of the tax year when the election begins.
For instance, if your business is formed on January 1, you should file the sub-chapter S form no later than March 15. This is true if you form your business on January 30 or February 3. The filing deadline is March 15. If you don’t file in time, you will not receive subchapter S status for the tax year.
What To Do Next
If the above information sounds a bit confusing, don’t worry. You can learn more about a professional corporation taxed as an S corporation by speaking to me. This may be something that you may or may not want to do.
Contact me at firstname.lastname@example.org to schedule a consultation.
If your main reason for electing subchapter S is to reduce your tax burden, you will find a sub-chapter S status to be a logical solution. However, if you want to aggressively raise capital or money, you may want to run your personal corporation as a C corporation.
Again, give me a call or contact me by email at email@example.com today. Let me show you how to make the most of what you make and establish a plan for your business that meets your current and future objectives and needs.
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