How to Save Taxes with an S Corporation
Ever wondered why so many small businessesmore than 3,000,000 at last countoperate as an S corporation? Simple. An S corporation saves business owners big taxes in three separate ways:
First, as compared to regular corporations (sometimes called C corporations), S corporation owners can use the businesss losses incurred during the early lean years on the owners personal returns as deductions. For example, suppose a new S corporation suffers a $20,000 loss its first year and that the corporation is equally owned by two shareholder-employees, Smith and Jones. Smith and Jones each get a $10,000 business deduction on their individual tax returns because of the S corporation loss. This $10,000 deduction might save them each as much as $4,000 in federal and state income taxes.
A second, big S corporation benefit: As compared to almost every other business form, S corporations can save their owners self-employment or Social Security/Medicare taxes. Suppose, for example, that Adams, Brown and Cole independently each own businesses that make $90,000 a year in profits. Each business owner may pay $13,000 in income taxes. But,...
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