Despite the advent of limited liability companies in Michigan, S corporations remain one of the most popular forms of business entity. S corporations have several advantages, but perhaps their most attractive feature is pass-through taxation. S corporation profits flow directly through to the shareholders, where they are taxed. C corporation profits, on the other hand, are taxed at both the corporate level and again when distributed to the shareholders.
Several requirements must be observed in order to preserve the valuable tax benefits of an S corporation, including the following:
If a company’s S corporation status is lost, then not only will the company be subject to the double taxation of a C corporation, but losses will not flow through to the shareholders and there will be a five-year waiting period before S corporation status can be reelected.
If you have any questions about achieving or maintaining S corporation status, please contact us here at Wright Beamer.