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S Corporation

Most small businesses that form a corporate structure would not want to operate as a general C Corporation due to the unfavorable tax treatment. Rather, the owners may elect S-Corporation status, with all the benefits of a general corporation (asset protection, transfer of ownership, and a lifespan independent of its owners), combined with flow-through tax treatment to the individual owners. Income and deductions are reported on IRS Form 1120S. Profits flow through to shareholders on IRS Form K-1 to be included on the individual’s tax return (Form 1040). In D.C. the fee to file articles of incorporation begin at $203.50, with a biennial registration fee of $275.

Tax Tip – Earnings of an S Corporation, after paying reasonable salaries, can be passed through as distributions of profits that are not subject to self-employment tax.