Question

Briefly discuss an advantage of being taxed as an S-Corporation. Explain what is different from the way it would be handled if the taxpayer was a partnership or a C-Corporation. 

Discuss a disadvantage of being taxed as an S-Corporation. Discuss whether the advantages can outweigh the disadvantages. 

Answer 1

Answer:

Advantage of being taxed as an S-Corporation- S corporation has elected to be taxed under Sub chapter S of the internal revenue code, it makes it a Pass-through entity for tax purpose. It results in lower taxation. The S election allows the shareholders to be taxed only at the individual level instead of both, the corporate and individual. Shareholders are taxed only once in an year. There is no tax, levied on the corporation level but only on individual level.

Disadvantage of being taxed as an S corporation- Tax is imposed on certain passive activity income when shifted from C corporation to S corporation. Fringe benefits are taxable.

Disadvantage of being taxed as an C corporation- As far as taxation is concerned, C corporation is subject to double taxation. Shareholders of C corporation are taxed at corporation level and individual level both.