You Asked & Community Answered: Should I Change From Sole Proprietor to S Corporation?
on September 14, 201810:11 AM Updated September 14, 201810:11 AM - last edited March 18, 202012:52 PMMarch 18, 202012:52 PM by jyothikm
You have questions about running a small business, and our QB Community members have answers! Everyone here knows the importance of building meaningful member-to-member relationships, and there’s no better way to learn, discover and get inspired as an entrepreneur. Best of all? When members share what they know, everyone benefits. Check out this recent QB Community conversation, and you’ll see what we mean!
@JTcarpentryasked: Hello, we are still a newer company but have been in business for 4 years, running as a sole proprietorship. Does anyone have some quick and simple advice as to why maybe an S corp would be beneficial to me?
@Acupuncture4U answered: An S corp or LLC protect you against lawsuits. Your business can be sued but your personal property is protected and untouchable. With a Sole Proprietorship if you are sued your personal property becomes a part of the law suit.
@MorganBanswered:I'm glad you turned to us here in the Community for assistance. I'd like to help point you in the right direction. To break it down a little, an S corp is a corporation with 100 shareholders or less that has met IRS specifications which enables them to be incorporated but to be taxed like a partnership would.
@qbteachmt answered: As a Sole Proprietor, you can take any money from the business whenever you want to and that is not the taxable event. Even if you don't take any money out, you still report the taxable income and pay income taxes on it. This is called Pass Through Entity. You cannot be on payroll. You are not your own employee.
There is C corp and S corp. There are tax regulation advantages to the various entity types. Also, employees start to come into consideration. Under a corporate structure, you are an employee. The US Supreme Court tells us corporations are their own persons -- the corporation cannot do any work. It hires employees. It is separate from you. It hires you as an employee.
quickbooks.intuit.com@Rustler answered:If your state has state income tax, then your state’s tax treatment of an S corp is something to consider. At least one state I know of taxes an S corp earnings before it is passed through to the owning shareholders. It is then taxed again on their personal state return.
quickbooks.intuit.com@mcwagner answered: There are a few pitfalls to an S corp, the main one being that all capital and distributions MUST be proportionate to the members' ownership percentages. This doesn't always suit the owners' desires. Running payroll is a hassle. A lot of owners think this is what they want, then they don't do the work, thereby negating the advantage they wanted.
What’s your burning question? Our friendly, supportive members have business smarts galore. Got answers or ideas to share? The floor is yours! Click here to find out everything you need to know about starting a discussion or asking a question. Not yet a member? Join QB Community right now and start making the most of this knowledgeable, awesome community!