What is the major advantage of S corporations?

Answer 1

The net income of an S-Corporation are taxed to the end of the S-Corporation's fiscal year as part of the income taxes that are paid during the shareholders tax year in which the S-Corporation completes its fiscal year.

This provides a benefit of avoiding the corporation "double-tax". That is, with other types of corporations, the corporation pays the taxes directly. Then, when you sell your stock in the company the increased value of the stock is taxed again. When you sell an S-Corporation stock, you are not taxed on the gain as a stockholder because the tax was already paid when the corporation reported income.

The corporate tax rate is also usually higher than the highest individual tax rates. If the tax is paid through an individuals income tax, the overall tax paid as a percentage of the corporations income is lower than it would be under other types of corporations.

An S-Corporation also has an added benefit when it takes a loss for the fiscal year. With other types of corporations, usually a loss results in zero tax. With an S-Corporation, the loss is passed to the shareholders who can deduct the loss from their income for individual income tax purposes, resulting in a lower tax for the individual.

Answer 2

S corporations' major benefit is that they are taxed like partnerships.