Should Your Start-Up Elect S Corporation Status?

When launching a new business, one of the most important early decisions is selecting the appropriate tax structure. An S corporation election can provide meaningful tax and liability advantages for certain start-ups, but it is not the right choice for every business.

One key benefit of S corporation status is the ability to avoid double taxation. Unlike C corporations, S corporations are generally not subject to federal income tax at the entity level. Instead, income and losses pass through to shareholders and are reported on their individual tax returns.

S corporations may also offer payroll tax planning opportunities. Shareholder-employees are required to receive reasonable compensation subject to payroll taxes, but remaining profits may be distributed as dividends, which are not subject to self-employment taxes. When structured correctly, this can result in overall tax savings.

In addition, operating as an S corporation provides limited liability protection, helping to separate personal assets from business obligations when corporate formalities are properly maintained.

However, S corporations are subject to strict eligibility requirements, including limitations on the number and type of shareholders. Ongoing compliance, payroll administration, and reporting obligations can increase administrative complexity and cost.

Careful evaluation is essential before making an S corporation election. Our firm can help you assess whether this structure aligns with your business goals and growth plans. If appropriate, we will assist with the election process and provide ongoing compliance and tax planning support. Contact us for expert guidance and practical solutions.

About Bruce & Company, P.S.C.

Founded in 1976 by Gregory T. Bruce, Bruce & Company, P.S.C. is a full-service accounting firm proudly serving clients regionally, nationally, and globally, with our central office located in Madisonville, KY. For more than four decades, we’ve delivered trusted expertise in tax, financial planning, and auditing. Our knowledgeable team is dedicated to providing personalized service and practical solutions to help individuals and businesses achieve their financial goals. Contact us to learn more about how we can support you!