As we have previously discussed, there are many types of corporations in Texas. One of the most common and beneficial can be the S Corporation, also known as a small business corporation. No matter if you are a self-employed company of one, just starting a business, or have had one for several years, forming an S corporation can have many benefits. Many professionals and business proprietors may assume it can be too expensive or take too much time, but this is not so. Read on to see if turning your business into an S corporation is right for you.
1. No Double Taxes on S Corporations
Those who work for a large corporation are double and even triple taxed. This is because they are taxed at the corporate level, the payroll level, and then again at the income level, also known as the paycheck tax. However, those who own an S corporation only pay one lump tax, which is usually significantly less. Owners of an S corp can also pay individual taxes on their own wages, but not the self-employment taxes that others do.
2. Extra Level of Protection
Ever been sued before? It’s not fun. Owners of an S corporation also enjoy added legal protection. In fact, S corporation members and their personal assets are protected against liability for any actions related to company business. A few examples of how an S corp can protect your assets during a dispute include examples such as a plumber who breaks a water main while working. Other good ones include a room-sharing business who experiences a flood or even if a customer hurts themselves while on your business property.
3. Cheaper Than Another Year of Traditional Taxes
At the time of this writing, it costs $300 to fill out the form to the Texas Secretary of State in the hopes of getting approved. But when you consider the tax savings of even the smallest of businesses can be $500 per year on the conservative side, it is a wonder our business doesn’t get more requests to turn the self-employed and sole proprietorships in to S corporations.
4. Easy Ownership Transfer
The assets in an S corporation are allowed to be freely transferred without running into severe taxable consequences. The S corp is not required to make adjustments to assets or comply with complex accounting rules when ownership is sold or transferred. This can be useful if the S corporation owners wish to transfer all or part of the business to a spouse, child, family member, business partner, or other. Those who have a limited liability corporation (LLC) cannot transfer more than 50% of their ownership without running into complicated road blocks and legalities.
5. More Credibility
Without an S corp. businesses are often relegated to using their Social Security number for tax purposes. This can make you look like an amateur. In addition, it may also disqualify you from working with certain businesses who are only allowed to work with authorized vendors. These authorized vendors are often required to have an Employer Identification Number or EIN. This is the corporate equivalent of an SSN and necessary for some to hire you.
6. But It’s Too Complicated
Sure setting up an S corporation isn’t easy or cheap, but it does come with huge payoffs. It is more complex than filling out a form and mailing a check, especially if you get turned down for a clerical error. But when you think about the benefits that are possible, it can be well worth the hassle. And just like taxes, there are professionals in your area who can help you navigate the issues associated with setting up an S corp and help you get it right the first time.
To learn more about the benefits of an S corporation in Texas, visit the office of the Secretary of State.
Set up an S Corporation in Houston
If you do business in or around the Houston area and are wondering if an S corporation is right for you , please contact us to learn more about how it can benefit you.