S corporations do not pay any income taxes Part 3

Corporation staff

Presented by Paystrubmakr.com      By John Wolf and Tom Cullen CPA

Paystub Maker inform you more about Income taxes and S Corporation


Specific circumstances where an S corporation may be desirable are:

(i) The business is expected to incur large losses and credits that may be better used by the shareholders than the corporation;

Note: Individual shareholders may benefit from a reduction in their taxable income during the first years of the corporation’s existence when it may be operating at a loss.

(ii) The business has little reason to accumulate capital;

(iii) The business will have a large cash flow that it intends to distribute;

(iv) Limited liability requires the use of a corporation; and

(v) When corporate rates are higher than individual rates.

Do Chapter Sub S Corps File Personal Tax Returns? 2020

For tax purposes, an S corporation is somewhat of a hybrid entity that has characteristics of both a corporation and a partnership. Although it operates as a corporation, the business is not subject to double taxation since it is the shareholders, and not the corporation, who pay federal income tax on the business profits. Nonetheless, the S corporation must still file an annual corporate tax return.

Paystubs are easy to make, just 1,2,3 and it is done

10 Reasons To Make A Pay Stub

Permanent S Corporation Built-in Gains Recognition Period Act of 2014

Life insurance starts at a young age.


A subchapter S election has quite a few disadvantages (or potential disadvantages) that receive remarkably little press. It is important for you to take into account these factors before electing S corporation status:

1. Since there is no corporate tax rate, non-qualified deferred compensation plans are impractical.

2. There is no situation to accumulate corporate earnings in a lower corporate tax bracket. It is difficult for an S corporation to reinvest its profits in the business since current profits are taxed to shareholders whether they are distributed or not.

3. Split-dollar and other non-deductible fringe benefits for the shareholders cannot be paid for by lower taxed corporate funds.

4. The 80% dividends received deduction is lost (§243 and §1373(c)-(d)).

5. The state tax laws may not provide for anything like a subchapter S election. Often states that have enacted a corporate income tax have not adopted

a similar provision to the federal Subchapter S. Thus, in some states a Sub Chapter S election will not avoid the corporate double tax.

Hard life is for tunnel workers.

6. A new or dissident shareholder can cause the termination of the subchapter S election through a disqualified transfer of stock.

7. Neither an S corporation nor a C corporation has the flexibility that partners and partnerships do under §754 to equalize the outside basis of the owner’s interest with the inside basis of the entity’s assets on certain acquisitions of these interests or property distributions from the entity to the owners.

8. Subchapter S corporations do not enjoy the special allocation of deductions and basis that are afforded partnerships under §704(b) and (c).

9. All income, except long-term capital gains, received by the corporation are taxable to the shareholders whether or not they are currently distributed.

10. Use of an S corporation results in a loss of lower tax bracket at the corporate level on the first $75,000 of taxable income.

11. There are restrictions on borrowings by S corporation shareholders from their qualified retirement plans (§4975(d)).

12. If an S corporation shareholder is not a material participant, S corporation losses may only be deducted against passive profits.

13. More record-keeping may be required by an S corporation because of the need to maintain accurate records for basis in shareholder’s stock, to maintain the accumulated adjustments account, and to determine the taxability of distributions.

Food workers have payroll and paystub

C corporation Vs. S corporation Wikipedia

  Paystub Generator

Becoming an S Corporation


A corporation must be formed by both state and federal law. An S corporation, like other corporations, must obtain a corporate franchise or charter from the state in which it intends to incorporate or do business. Corporate capitalization involves the transfer of money and property to the corporation in return for stock in the corporation. Section 351 provides that

if one or more persons transfer property or money 2 to a corporation only in exchange for stock of that corporation, and immediately after the exchange the transferors are in control of the corporation, no gain or loss is recognized to the transferors of the corporation.

Welding life insurance to payroll

Note: Control is defined as owning (1) at least 80% of the total combined voting power of all classes of stock entitled to vote; and (2) at least 80% of the total number of shares of all other types of stock of the corporation. (Quizlet) Read more 

Flow-through entity Wikipedia

Get a low-cost Paystubs Generator.

A corporation can become an S corporation if:

1. It meets the requirements of S corporation status.

2. All its shareholders’ consent to S corporation status.

3. It uses a permitted tax year, or elects to use a tax year other than a permitted tax year, explained later.

4. It files Form 2553, Election by a Small Business Corporation, to indicate it chooses S corporation status. S corporation Utah Government pdf  9-5

What Tax Reform Means For Small Businesses & Pass-Through Entities  Forbes

Paystub Maker team thanks you for reading its Blog

The next blog will tell you more about S Corporation.


paystumbmakr.com team thanks you for a visit and reading this blog    Pays tub online       About pay stubs

Learn how to create your pay stub



Disclaimer: John Wolf and paystubmakr.com are making a total effort to offer accurate, competent, ethical HR management, employer, and workplace advice.  We do not use the words of an attorney, and the content on the site is not given as legal advice. The website has readers from all US states, which all have different laws on these topics. The reader should look for legal advice before taking any action.  The information presented on this website is offered as a general guide only.