S Corporation Taxation
An S corporation (S Corp) passes income directly to owners. The owner’s salary pays employment taxes and income tax. Distributions only pay income tax. This leads to S corp tax savings. If you’re a business owner making over $60,000 in earnings with $20,000 in annual distributions, let ZenBusiness start your S corp to start growing your business.
Comparison of S Corporation and C Corporation Taxation
A C corporation has a 21% federal tax rate. Most avoid double taxation with an S corporation. Profits flow through to owners’ tax returns, which is usually more efficient.
Tax Rates and Payment Methods
Owners involved in daily operations pay taxes three ways: 15.3% on the first $117,000 of income, 2.9% on the next $83,000, and 3.8% on income over $200,000.
Passive Income and State Taxes
If an S corp earns passive income, shareholders may owe taxes from the switch from C status. Some states levy S corp state income tax. Business expenses deduct from S corp profits to determine net income. If negative, it passes through as a deduction.