1. S corporation shareholders are not personally liable for corporate debts, as long as the corporation is adequately financed and maintains its separate entity status.
2. S corporations allow shareholders to deduct their percentage share of losses on their personal tax returns to the extent of their basis in the stock and any loans made to the entity. Excess losses can be carried forward for future deduction.
3. Once profits are earned, S corporation income is taxed directly to shareholders, regardless of distribution. This income is reported on individual tax returns and may be eligible for the 20% pass-through deduction. 1. The QBI deduction is scheduled to expire after 2025 unless Congress acts to extend it.
2. Providing fringe benefits such as health and life insurance to a more than 2% shareholder is deductible by the entity but taxable to the recipient.
3. Transferring stock to an ineligible shareholder could cause an S corporation to lose its S status, leading to potential tax consequences and loss of deductions.
4. It is recommended for each shareholder to sign an agreement promising not to make any transfers that would jeopardize the S election.
Choosing an Entity for Your Business? How About an S Corporation?
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