"S" Corporations

The subchapter "S" Corporations has many tax advantages:

1. Profits are not subject to FICA (Social Security + Medicare Tax.) This is a tremendous loophole in the tax law and can save shareholders thousands of dollars, each year. The profit of the Subchapter "S" Corporation is deemed "unearned" income and thus is not subject to any employment taxes.

2. Double taxation is avoided since the Subchapter "S" Corporation "passes its income through" to its shareholders, that income is only taxed once at the individual level.

3. Losses can be deducted on the shareholder's individual Income Tax Returns (Assuming they are active in the business and have a sufficient basis in the stock.) Since the Subchapter "S" Corporation passes its losses through to its shareholders, those losses can be deducted on the shareholder's individual income tax returns. Losses are only permitted for active shareholders and are limited to the adjusted basis of each shareholder's stock.

4. Avoid the Flat 35% Personal Service Corporate Tax Rate that would apply to doctors, lawyers, engineers, architects, accountants, actuaries, performers, and consultants who are "C" Corporations.

5. IRS audit disallowances are subject to just one level of tax. Since the "S" Corporation pays no tax and passes its income or loss through to its shareholders, an IRS audit disallowance would only be subject to personal income tax.

6. Can own stock in a "C" Corporation or in another "S" Corporation.

7. Not subject to the alternative minimum tax, the accumulated earnings tax, or the personal holding company tax.