3 Tax Benefits of S Corps vs Sole Proprietorships. . -- Kiritsis Law Firm Group 212 922 0005

Apr 27, 2021

S Corps are usually, more favorably treated for federal tax purposes, than sole proprietorships.

1. Less self-employment taxes. S Corporation owned by one owner, could have a large chunk of their income generated by the business, passed on to them as a distribution, which is essentially treated as a return of capital, that unlike wages, are exempt from self-employment taxes.

2. Separate tax return. An S Corp files a separate tax return to report the business operation financial results, through Form 1120S. Although, largely, there no tax due with Form 1120S, it has the impact to lessen the impact, in terms of display on Form 1040.  This could provide the sole business owner with certain benefits, in some unique situations (i.e. certain property tax appeals, state or local tax credits or tax subsidies).

3. Less risk of tax audit. Due in large part, to the business reporting on separate tax returns, the sole owner, could in certain situations, avoid some of the most commonly audited tax forms, such Schedule C.

 

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