For taxation reasons, an S-Corp is a specific type of corporation that is regarded as a pass-through entity. This indicates that the corporation’s gains and losses are transferred to the shareholders for inclusion on their personal tax returns. An S-Corp is a legal corporation that can possess assets, even if its primary use is for taxation.
Real estate, machinery, and other sorts of property are examples of the assets that an S-Corp may own. The company can either pay cash up front or get financing to buy these assets. The assets are owned by the corporation and are distinct from the shareholders’ individual personal holdings.
An S-Corp can do more than just retain assets; it can also sign contracts, employ people, and conduct other commercial operations. The shareholders are not individually liable for the corporation’s debts or liabilities; rather, the corporation is responsible for its own debts and liabilities.
For taxation reasons, an LLC is a particular kind of business entity that is also regarded as a pass-through entity. Similar to an S-Corp, an LLC passes along its profits and losses to the members, who then report them on their individual tax returns. An LLC is not taxed as a corporation since it is not one.
Instead, an LLC is taxed differently depending on how many members it has, either as a partnership or a sole proprietorship. While an LLC with more than one member is taxed as a partnership, an LLC with only one person is treated as a sole proprietorship. The LLC must submit a tax return in any situation.
Articles of Organization must be filed with the Pennsylvania Department of State in order to create an LLC there. Depending on the form of filing and other circumstances, Pennsylvania’s processing time for LLC filings varies.
The processing time for online filing of articles of organization is normally two to three business days. The processing period for mail-in filings may take up to 7–10 business days. Processing more quickly is possible for a cost.
For taxation purposes, you are not regarded as a self-employed individual if you own shares of an S-Corp. Instead, the company views you as one of its employees. As a result, you must be paid a fair wage for the services you render to the company and be responsible for paying Social Security and Medicare taxes on that wage.
You might additionally get non-payroll taxed distributions from the company on top of your income. These payouts are reported on your individual tax return as a return on your investment in the corporation.
A shareholder’s principal house mortgage payments are one of the expenses that an S-Corp may cover on their behalf. The payment must be seen as a legitimate and essential business expense, though.
The S-Corp should have a formal agreement with the shareholder stating the parameters of the payment to ensure that it is seen as a legitimate business expense. Additionally, the payment must follow the S-Corp’s bylaws and be approved by the board of directors.
An S-Corp can own property and carry out a variety of business operations, to sum up. An LLC is taxed differently than an S-Corp even though it is a pass-through business. Depending on the filing type, Pennsylvania’s processing times for creating an LLC vary. S-Corp shareholders must be paid payroll taxes and get a fair salary; yet, they are not regarded as self-employed. If they are deemed to be fair and necessary business expenses, the S-Corp may pay certain expenses, including mortgage payments, on behalf of its shareholders.
It is possible to have a S corp without any employees. S corporations are often modestly sized companies with a few stockholders. Although having employees is typical, it is not necessary to set up a S corp. The company can be run completely by the shareholders or without workers by using independent contractors.