Starting a Business with a Subchapter S Corporations

Entrepreneur at Entrepreneur,com defines a Subchapter S Corporation in the following way:

“Definition: A special form of corporation that allows the protection of limited liability but direct flow-through of profits and losses.”
The significance of this for the small business person is that it is possible to save on the costs of being taxed twice by the IRS on revenues that your business generates.

Here is what the IRS web site has to say about Subchapter S Corporations:

S Corporations

“An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation. Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss.”

If you create an S corporation you may nevertheless be liable for taxes such as: Income Tax, Estimated tax, Employment taxes and Excise Taxes. The: IRS web site can help you navigate the forms that you will need to file these taxes.

I do not believe in re-creating the wheel, and there are plenty of informative articles on the web about Subchapter S Corporations. One very good article is “Subchapter S: Some Myths, Realities and Practical Considerations”, which is one of a series of articles entitled: “Starting Up: Practical Advice for Entrepreneurs” by Joe Hadzima. This particular article is reprinted from the Boston Business Journal and posted by MIT at its website.

Entrepreneur also gives a very good run-down of some of the benefits and drawbacks of doing business as a Subchapter S Corporation .

And finally, for a brief overview of Subchapter S Corporations in very clear layman’s terms, you may wish to take a look at Wikipedia’s treatment of the issue.

We will return to the issue of Subchapter S Corporations and compare them to the other possible forms of business structures for the small business. But for now, this should provide plenty of reading for the Entrepreneur who is consider starting a small business and structuring it as a Subchapter S Corporation.