Question

A major advantage of S corporations is that they:

Select one:
a. Can have more stockholders than a C corporation.
b. Can operate in foreign nations as if they were domestic corporations.
c. Require less paperwork to set up than a C corporation does.
d. Avoid the problem of double taxation associated with conventional corporations.

Answer 1

The key advantage of an S corporation is avoiding double taxation, with profits only taxed at the individual shareholders' level, not at the corporate level.

Step-by-step explanation:

The major advantage of an S corporation is that it avoids the problem of double taxation associated with conventional corporations. Unlike C corporations, where profits are taxed at the corporate level and then again at the individual level when dividends are distributed to shareholders, S corporations are pass-through entities. This means that profits and losses are reported directly on the individual shareholders' tax returns, thereby only being taxed once.

Setting up an S corporation does require paperwork and adherence to regulations, but its most salient benefit over a C corporation is the tax structure. The ability to have profits and losses flow through to shareholders' personal tax returns without facing corporate taxes offers significant tax savings for eligible businesses and their owners.