If you are an S corporation use the information in the charts below to help you determine some of the forms that you may be required to file.
|If you are an S corporation then you may be liable for...
1120S (S corporation)
||1120-W (corporation only) and 8109|
- Social security and Medicare taxes and income tax withholding
- Federal unemployment (FUTA) tax
- Depositing employment taxes
941 ( 943 for farm employees)
940 or 940-EZ
||Refer to the Excise Tax web page|
Legal Benefits of Incorporating
Incorporating your business provides legal protection of your personal assets. It safeguards your personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all liabilities of a business including accounts payable, loans, and legal judgements. However, in a corporation, the stockholders, directors, and officers are usually not liable for their company's debts and obligations. They are usually limited in liability to the amount they have invested in the corporation. For example, if a stockholder purchased $100 in stock, they can't lose more than $100 of their personal assets. Corporations and Limited Liability Companies (LLCs) can also hold personal assets like cars, boats or houses. If a person is involved in a lawsuit or bankruptcy, these assets may be protected. A creditor of the owner of a corporation or LLC cannot seize the assets of the company; however, they can seize their shares in the corporation because that is considered a personal asset.
Tax saving options for a corporation or LLC may provide advantages not available to sole proprietorships and partnerships. You can establish pension or profit-sharing plans and deduct the money you set aside for them from your net profits in turn lowering the corporation's taxable income. Medical, life, and disability insurance premiums can be completely tax deductible when operating in the corporate or LLC form, unlike other entity choices.
Corporations are taxed at a lower rate than individuals in the United States. Owners of corporations can also own shares in other corporations and receive corporate dividends 80% tax-free. There is no limit on the amount of loss a corporation may carry over to subsequent tax years. On the other hand, a sole proprietorship cannot claim more than a capital loss of $3,000 unless the owner has offsetting capital gains.
Incorporating your business makes it easier to set up retirement funds and certain qualified retirement plans such 401ks. In addition, an owner of a corporation can fully deduct the cost of his or her health insurance. Capital from investors can be raised for corporations easily through the sale of stock.
Ownership in a corporation is much more easily transferable to others, either in whole or in part. Some states' laws make it particularly rewarding to do so. For example, in Delaware, the transfer of ownership in a corporation does not legally have to be recorded or filed.
A corporation can get you other great benefits. Regardless of an owner's personal credit scores, corporations acquire their own credit rating and build a separate credit history by applying for and using it's own corporate credit. There is great ease in doing business with a corporation or LLC. Many stores and banks favor corporate accounts and some merchants offer corporate discounts.
Finally, corporations are capable of continuing indefinitely. Their existence is not affected by the death of directors, shareholders, or officers of the corporation. A corporation is the most enduring form of business structure because it can have perpetual existence. If an owner of a corporation dies, his stock ownership can be quickly transferred thereby allowing the corporation to continue to operate smoothly.