What Is S-Corporation?
Understanding S- Corporation
S Corporation means the following:
- This Corporation incorporates under the state law, yet holds all its corporate features. It can be a limited liability [LLC] yet not pay any entity tax.
- Another feature is that all the income loss, credit as well as deduction flows to the shareholders too.
Eligibility Criteria
- S - Corporation is always domestic.
- The shareholders cannot be more than 75 individual persons in number.
- The stock ownerships plans, charities and pension plans can be shareholders as well as get s- corporation tax exemption.
- Any non-resident individual cannot be a shareholder.
- There can be only one class of stock.
Drawbacks
S- Corporation has the following limitations:
Points To Ponder Over
- In case of heavy losses, the s-corp is the least desirable LLC.
- Shareholders are only allowed to write off losses that match their investment amounts.
- Losses can be recognized in further years as well as they get carried forward.
- The regulations on deductibility of passive losses may curtail the deductions for vs s-corp.