S-Corporation Formation Lawyer San Diego
S-Corporation Formation Lawyer San Diego
S-Corporation Formation Lawyer San Diego
If you’re thinking about starting a business, one of the first questions you need to ask is “which type of business entity best fits my company?” As you’re doing your research, you may find out that S-Corporations pay no federal income taxes! Sounds appealing, right? While S-Corps do have many benefits, they also have some drawbacks and strict legal requirements. That’s why it’s important to discuss your business plans with an S-Corporation Formation Lawyer San Diego to learn the ins and outs of what’s right for your company.
What Is an S-Corporation?
An S-Corporation is actually a tax designation that allows for these business entities to be taxed under IRS code Subchapter “S”. So what does that mean? Essentially, an S-Corp is considered a pass-through tax entity, whereby the corporation itself pays no federal corporate income taxes. Instead, those taxes are passed onto the shareholders to be paid on their individual tax returns at their typical marginal income rate (anywhere from 10-37% based on their income bracket).
C-Corporations, on the other hand, have to pay federal income tax on their profits and losses at the corporate rate (21%), and their shareholders also have to pay personal income taxes on the dividends they get from the business. This is sometimes referred to as “double-taxation” and is one of a variety of reasons people may choose to go with an S-Corp instead.
S-Corporations still have the liability protections of a corporation, but with these additional tax advantages. That means if something were to happen to your business legally, you would not be responsible for it personally in the same way you could be as a sole proprietor or partnership. An S-Corporation Formation Lawyer San Diego can help you figure out if the benefits of an S-Corp will be worth it for your business model.
What are the Disadvantages of an S-Corporation?
So it seems like S-Corporations are great, right? You don’t get double taxed and you still have liability protection, plus you can even pay yourself a salary and dividends while only having to pay self-employment tax on the salary portion. Why doesn’t everyone just form an S-Corp?
Well, S-Corps have very strict legal rules to follow in regards to tax laws, shareholders, ownership, and procedural/operational requirements. Our S-Corporation Formation Lawyer San Diego can walk you through the pros and cons of how an S-Corp would function for your business, but here are some basic drawbacks:
- Can’t have more than 100 shareholders, which means can’t be a public company
- Must be owned by individuals who are U.S. citizens or permanent residents (also available to certain domestic trusts, estates, and tax-exempt organizations)
- Receive extra IRS scrutiny, especially related to income and dividends disbursements
- Very strict operational requirements that can lead to legal or tax penalties if not followed
Do I Need an S-Corporation Formation Lawyer San Diego?
Forming an S-Corporation requires a variety of documents and a good understanding of the legal requirements surrounding that business entity. If you haven’t gone to law school yourself, getting the expertise of an S-Corporation Formation Lawyer San Diego will be extremely helpful as you navigate the process.
Here at Bagla Law, we have a fantastic S-Corporation Formation Lawyer San Diego with years of experience helping people like you start their own businesses and form successful corporations. If you’re interested in learning more about S-Corporations and your business entity options, schedule a consultation to sit down with our S-Corporation Formation Lawyer San Diego and discuss what’s right for you.
About Kelly
Kelly is an international award-winning corporate and securities attorney who has been providing expert legal counsel to domestic and international clients for over 17 years. Kelly’s passion is helping entrepreneurs start, run, and grow their businesses with the right legal structure and the right legal contracts.
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