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What is a sub-s corporation?

On Behalf of | Oct 15, 2015 | Business Formation & Planning |

When forming your future business, it is important to establish what type of corporation you are planning. The status of your business will play an important role in determining what taxes you are held liable for in the state of Ohio. You could also be eligible for some benefits or tax breaks of you own a certain type of business. Small businesses in particular should be thoroughly planned for success.

A sub-s corporation is one that passes on financial fluctuations, such as corporate income, deductions, losses or credits, to the shareholders. This is done for federal tax purposes. These shareholders then report the earnings and losses on their personal income tax documents. Taxes are assessed at the rate of the individual shareholder, rather than the business as a whole. This is a route that allows the corporation to avoid being taxed twice for income. This type of corporation is responsible for specified areas, such as entity level passive income and built-in gains.

There are certain requirements that must be met in order for a business to file for s corporation status. First and foremost, it must be a domestic business. It must also have allowable shareholders, which does not include partnerships or non-resident shareholders. The corporation must also have no more than 100 shareholders and may only have one class of stock.

There are certain forms that must be submitted in order to file for this type of status, but if your small business meets the qualifying criteria, doing so could be advantageous. If you would like more information, speaking to an experienced attorney might be beneficial.


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