If you would like to start an S corporation in California, read the following information to gain further insight into the process. If you are seeking to form this type of business, you, no doubt, want to enjoy the tax advantages associated with forming the entity.
What are the Two Main S Corporation California Benefits?
An S corporation California entity can serve your well, as it offers the following advantages:
- This business entity offers limited liability but provides the more traditional structure of a corporation.
- Pass-through taxation is offered for business profits. Therefore, you can record these profits on your tax return.
As a result, shareholders or owners of an S corporation enjoy lower income taxes and self-employment taxes. The pass-through feature permits owners of the company to reduce their total tax costs or pay taxes at a rate lower than what the corporation would have to pay.
Send me an email about any questions you may have about this incorporation. I can be reached at sam@mollaeilaw.com anytime.
An S corporation California formation is a standard corporation that becomes a subchapter S company when the business’s shareholders elect a special tax status with the IRS (Internal Revenue Service).
Like a C corporation California business, an S Corporation is regarded, legally, as an individual entity – one that is separate from its shareholders or owners. In turn, shareholders of an S corporation enjoy limited liability from obligations or the debts incurred by the business. This liability also extends to legal actions that may emerge.
I can help you make the needed distinctions between a C Corporation filing and an S Corporation. I can also help you set yourself up as an S Corporation for tax purposes. Contact me today at sam@mollaeilaw.com for further details.
How Does a Company Form an S Corporation California Business?
An S Corporation California business must follow two basic steps to become incorporated.
- The company first must file an Articles of Incorporation with the state of California.
- The company follows up by electing S Corporation status with the Internal Revenue Service (IRS).
The election should be made within a certain timeframe after incorporation. Let me help you ensure that your incorporation is successful. Contact me today at sam@mollaeilaw.com to get all the details.
When the Articles of Incorporation (or Certificate of Incorporation) is filed, filing fees must be paid. After incorporation, new business owners must file Form 2553 with the IRS. This shows that the company elects S corporation status. It is also necessary to adopt bylaws and hold an initial meeting of the shareholders and directors. Owners are issued shares of stock at this time as well.
This whole process, while basic, can be complex. That is why you need to work with a lawyer and rely on him or her for all your business legal needs. Because I specialize in company formations, you can go to one source to set up your business today.
Contact me at sam@mollaeilaw.com to get all the details and begin the incorporation process.
What are the Differences between S Corporation California Formations and C Corporation Entities?
To help you with an S Corporation California formation, you need to look at the differences between S Corporations and C Corporations in the state. The main difference, you will find, is how the two entities are taxed.
A Major Tax Benefit
Electing to run your business as an S corporation enables you to divide the income and losses among the shareholders (owners), who record the information on their tax returns. The S corporation is not taxed at a corporate level. Therefore, shareholders pay taxes individually instead.
Defining Double Taxation for C Corporation Entities
A C-corporation, on the other hand, is considered as a separate taxable company formation. Therefore, a C corporation pays taxes at the corporate level and the personal income level when shareholder payments are made. This is known as double taxation.
The S Corporation Advantage for California Small Businesses
Naturally, if you are a smaller firm, you will like the benefits attached to forming an S corporation California company. Doing so allows you to avoid the double taxation associated with a traditional C corporation formation filing.
What S Corporation California Regulations are Placed on Company Formation?
While an S Corporation California company formation is highly beneficial to a small business for taxation, certain restrictions should be noted. These restrictions follow:
- S corporations are only permitted 100 shareholders.
- All the shareholders in an S corporation must be permanent residents of the US. You cannot be a foreign investor and buy into this type of company.
- S corporation owners cannot be established as a general partnership, limited liability company, or C corporation.
- S corporations may issue only one type of stock.
The above restrictions should not be a hindrance if you operate as one person or form a small company. However, any efforts toward attracting substantial investors may prove to be a problem.
As a result, the big benefit associated with an S Corporation California formation is pass-through taxation. However, recent tax code changes make understanding this allowance more complex. I can assist you by answering any questions along these lines.
Who to Contact about the Legal Complexities of an S Corporation California Formation
Won’t you contact me by email today at sam@mollaeilaw.com to get all your concerns and questions answered about forming an S Corporation California company? Any company formation should be accompanied by support from a competent legal specialist.
What Does the “S” in an S Corporation California Formation Mean?
While some people believe the “S” in an S Corporation California entity means “small,” that is incorrect. This type of business references Subchapter S of the IRS code. An S corporation is designed to safeguard the company’s shareholders from a firm’s liabilities.
A Subchapter S designation must be elected by the company after the corporation has been chartered. This permits a business to combined the tax benefits of personal taxation with the limited liability advantages of a corporation.
How Does an S Corporation California Company Pay Income Taxes?
Once your business becomes an S Corporation California company, IRS Form 1120-S is used for reporting and filing taxes. Other shareholder distributions are made by using IRS Schedule K-1.
What Information or Forms are Needed to File Income Taxes for an S Corporation California Business?
An S Corporation California business may be liable for the following taxes. Therefore, you will need to check with your accountant what IRS forms are needed for recording and payment.
S Corporation California taxes may include:
- Income Tax (IRS form 1120S and 1120S Schedule K-1)
- Estimated Tax (IRS form 1120-W) – corporation only
- Employment taxes, including social security and Medicare taxes, and income withholding tax. Federal unemployment tax (FUTA) and depositing employment taxes are included as well.
- Excise taxes
Any information that applies to the above forms will be needed for taxation.
Also, S Corporation shareholders are liable for income taxes (IRS 1040 and Schedule E, including other referenced forms on the shareholder’s form Schedule K-1. Estimated tax payments must be made on 1040-ES.
You can get further details about taxes and the information used for recording by speaking to your accountant. I can also support any details along these lines. Simply send me an email at sam@mollaeilaw.com today.
What To Do Next
To form an S Corporation California business, you will need my legal help and support.
Again, feel free to contact me at sam@mollaeilaw.com to get started. I can assess your situation to see if you meet S Corporation criteria and get you started with the formation process.
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