An “S-Corp” Is Not Necessarily a “Corporation”
“I need a corporation formed so I can be an S corporation and get a tax advantage.”
No, not necessarily.
An “S” is a designation by the IRS for a specific tax treatment. It is not a legal entity in itself. A corporation can elect to be taxed as an “S-corporation” but so can a limited liability company (LLC). In fact, for many new businesses, an LLC is a much better fit than a corporation for a number of reasons.
If your certified public accountant suggests an s-corp benefits you, then it is likely the tax treatment really is favorable to your specific situation. That does not mean that a corporation legal structure is the best avenue.
For many businesses, the LLC is a better route. While good CPAs know this, like all professionals it gets easy to talk in acronyms, shorthand and lingo that sounds like code. Talking to your attorney will help you make the right final decision.
If the desire for an “s-corp” is from something you read, heard about or other advice from somewhere that did not know your specific business then – stop – and get the right advice for you. Tax law has changed over the years and continues to change. Some businesses benefit from this election, while others are better off with the tax structure of sole proprietor or partnership. Very often the tax treatment that is the best will change through the life of your business.
To be treated as an s-corp there is very specific timing on doing the election, and therefore it is important to get the advice and assistance early on.
Getting the right tax and legal advice from the start of your business can save considerable funds and headaches later.