Free «S Corporation» Essay
In the corporate world today, various business activities have come up leading to different forms of business organizations. The business people have therefore continued to adopt particular business organizational forms depending on their benefits such as the ease of formation. This write up presents a review of the findings by Marquez on the tax benefits and detriments of S corporation.
According to the article by Marquez, an S corporation is the corporation that elects to pass corporate income and losses to its shareholders for tax purposes. This is true according to the work of Schlesinger (2007) who argued that the earnings of an S corporation pass through directly to its owners who pay the individual federal income taxes.
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The article by Marquez identifies a number of advantages of the S corporation. First is the avoidance of double taxation. This is true since the taxes are only charged on the shareholders’ personal income from the corporation (Schlesinger, 2007). Another tax advantage according to Marquez’s article is that the S corporation offers tax savings opportunity to its shareholders. Schlesinger (2007) also agrees with this noting that the corporation provides tax saving plans such as the Deferred Compensation Plan to the shareholders.
The article also states that the pass through of the corporate income or loss can help the shareholders to minimize the taxes on corporate earnings. This is possible because it is only the money which is paid to the shareholders as salary that is taxed and not the money retained in the business for reinvestments (Schlesinger, 2007). Finally, Marquez’s article states that shareholders are also able to offset the corporation’s losses from their other incomes. This is also true since the S corporation passes the losses of a corporation who recognize the deductions on their tax returns (Schlesinger, 2007).
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However, Marquez’s article has also made it clear that the S corporations suffer disadvantages as well. First is its limitation to the types and the number of shareholders. This is true since an S corporation can only have one class of stock and not more than 100 shareholders (Schlesinger, 2007). Another disadvantage noted in Marquez’s article is that, at liquidation, the corporations have to pay some federal and state income taxes. Schlesinger (2007) also agrees with this fact noting that whenever the corporation is coming to an end, its assets are sold and the gains taxed.
In conclusion, the article has thus succeeded in giving a clear idea of what S corporations are and how they operate. However, it could be improved by covering other aspects of the corporations like their being less flexible in allocating incomes and taxes since the process is only guided by the stock ownership.
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