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S Corporations or Schedule C Filing Considerations for Businesses

By March 10, 2022No Comments

S Corporations or Schedule C Filing Considerations for Businesses  

Have you been thinking about whether your business could benefit by being a Schedule C or an S Corp? “This is one of the biggest challenges a business must face,” according to Jonathan Bello, Founder and CEO of One 8 Solutions. He recently went through this exercise after 20 years as a sole proprietor and transitioned to an S Corp.  

In this article, we will share insights about filing Schedule C versus S Corp to help you discern between the two. We strongly encourage business owners to consider enlisting legal and tax professionals’ expertise before forming a business entity and making tax elections. 

woman's hand on graph

What is a C Corporation?  

A C Corporation, (or C-Corp), is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C Corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation. 

 Key Takeaways: 

  • A C Corporation legally separates owners’ or shareholders’ assets and income from that of the corporation. 
  • C Corporations limit the liability of investors and firm owners since the most that they can lose in the business’s failure is the amount they have invested in it. 
  • C Corporations are mandated to hold annual meetings and have a board of directors that is voted on by shareholders. 

What Is an S Corporation? 

An S Corp election lets the Internal Revenue Service (IRS) know that your business should be taxed as a partnership. To become an S Corporation, your business first must register as a C Corporation or an LLC and meet specific guidelines by the Internal Revenue Service (IRS) to qualify. 

An S Corporation’s structure protects business owners’ personal assets from any corporate liability and passes through income, usually in the form of dividends, to avoid double corporate and personal taxation. S Corporations help companies establish credibility as a corporation since they have more oversight. S corps must have a board of directors who oversee the management of the company. However, S Corps can have100 shareholders and pay them dividends or cash payments from the company’s profits.   

Key Takeaways: 

  • S Corps have limited liability protection, like LLCs, which means your personal assets are protected from business debt and legal action  
  • Unlike LLCs, S Corps don’t pay self-employment taxes on their profits, so there is more of the profit left over for distribution to owners, who then pay personal income tax on that amount. 
  • The S Corporation election provides a way to avoid double taxation. How? The corporation’s profits and losses flow through to shareholders’ personal tax returns. The business does not pay corporate income tax. 
  • By being an S Corp, the company pays payroll taxes which are tax deductible. So, it lowers the income that gets passed through that becomes your income tax. 
  • There is a deadline for a new business in 2022 to file. You have two months and 15 days from their date of formation to file for S Corporation tax treatment for the rest of their first tax year. For example, for a tax year that began in January, 2022, the deadline for filing is March 15, 2022. 
  • For a more in-depth report on the matter check out CorpNet’s recent blog,  

woman with calculatorThe Bottom Line: 

Generally, S Corp. status is preferred by small businesses, which usually fit within the legal limitations for an S Corp. Certain types of corporations find more advantages with a C Corp. An S Corp. is more popular with smaller businesses because of the likely tax savings, and a C Corp is more popular with larger companies because of the greater flexibility to raise capital. However, whether C Corp. or S Corp. would be best for your business, we can’t stress enough that it is best to speak with an attorney or tax professionals’ advice to analyze various factors that pertain to your situation. We will circle back in a few months about the tax savings One 8 Solutions may have realized by making this switch to an S Corp.  

Whichever route you choose, there are increased accounting and bookkeeping needs that are required in electing to file as a C Corp or an S Corp. The One 8 Solutions team is here to assist you with all your accounting and bookkeeping needs no matter where you are at in the process. Having been both a C Corp and now an S Corp, we have first hand experience on how to help you expand your revenue while saving on taxes. One 8 Solutions also partners with lawyers and tax preparers to save you time, money and headaches.  

One 8 Solutions has your business covered from start to finish. Click here to schedule a Zoom phone consultation at no cost to you.