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Five advantages and five disadvantages of making an s election.
On the basis of the stock held on each day of the tax year, ordinary income or loss and separately mentioned items are allocated. As they are in a cooperation, special distribution of particular items is not allowed.
- Unlike a C corporation, a S corporation cannot deduct dividends it receives from its taxable income.
- Because a C corporation is considered a separate tax entity from its shareholders, the first $50,000 of its income can be taxed at a 15% marginal rate rather than the shareholder's marginal rate.
- Excess net passive income tax and a built-in gains tax are both applied to S firms. The two taxes mentioned above do not apply to partnerships.
- The S corporation's earnings are taxed to the shareholders even though they are not distributed. This treatment may require the corporation to make distributions or salary payments so the shareholder can pay taxes owed on the S corporation's earnings.
A special kind of corporation known as a S Corporation, commonly referred to as a S Corp, is formed by filing an IRS tax election. This shields the owner from liability while enabling those who can do so to avoid double taxation.
The most popular kind of corporation is a S Corp. An S Corp makes up about 70% of all corporations.
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