S-Corporations are not obligated to pay federal corporate income taxes, but they must file an income tax return.
They file an Internal Revenue Service form 1120S to report profits and losses.
The shareholders file K-1 forms and report profit or losses on their individual income tax returns.
S-Corp salaries and bonuses are taxable as income, but there is no self-employment tax applicable to an S-Corp.
The state regulations regarding S-Corps are variable, with some states treating S-Corps in the same manner as the federal government, and some states refusing to recognize them as anything other than C-Corps.
Still other states simply tax the shareholders on their percentage of the profits.
Some states like New Jersey, California, and New York tax both the S-Corp as an entity and the shareholders as individuals, a form of double taxation.
You will have to contact your state and ask about its taxation procedures for S-Corps.
No matter what your state does, the federal government shall still recognize S-Corps as such, no matter the locale.
Individual shareholders can claim S-Corp losses on their personal taxes and use these to offset other income sources.
Your claim of loss, however, cannot exceed your stock basis.
Your stock basis is your total investment in the company in the form of money and property, S-Corporations cannot have more than 75 shareholders and those shareholders must be United States citizens or resident aliens.
S-Corporations can have shareholders that are other S-Corporations, or partnerships, but S-Corporations cannot be owned by other S-Corporations, C-Corporations, LLCs, or trusts.
S-Corporations can only issue common stock and your percentage of stock holdings determines your share of the profits.
You can sell your interest in the company without other shareholders' approval.
You can transfer or sell your interest in the company to family members without difficulty.
It's as easy as signing over your stock.
Shares of the company are sold through stock offerings.
If you are a stockholder or owner of an S-Corporation, you should have a financial planner and a tax attorney.
A financial planner can help you to decide how to handle your holdings in regard to the S-Corporation and a tax attorney will help you to set up your options in a manner granting you the highest tax liability against your personal income taxes.
Perhaps, it is wise to invest in an S-Corporation because of its flow through to your personal income taxes, allowing you to write off start up costs against other sources of income.
This is the type of advice you might need from these tax professionals in the event of starting or investing in an S-Corporation.