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Understanding S Corporations

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Understanding S Corporations

Choosing the right business structure for your enterprise is a crucial decision. It has long lasting ramifications, as it sets the path for the future in terms of operations, management, legal, and tax issues. Proper research should be done before you take your pick.

There are several organizational forms that businesses can choose from, including sole proprietorship, partnership, limited liability company (LLC), corporation, or an S corporation.

Here we discuss an S Corporation, its structure, advantages, disadvantages, and more.

KEY TAKEAWAYS

  • An S corporation, also known as an S subchapter, refers to a type of legal business entity.
  • Requirements give a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. 
  • Corporate taxes filed under Subchapter S may pass business income, losses, deductions, and credits to shareholders.
  • Shareholders report income and losses on individual tax returns, and pay taxes at ordinary tax rates.
  • S corporation shareholders must be individuals, specific trusts and estates, or certain tax-exempt organizations.

What Is an S Corporation?

S Corporation is a variation of a corporation within Subchapter S of Chapter 1 of the Internal Revenue Code. Essentially, an S corp is any business that chooses to pass corporate income, losses, deductions, and credit through shareholders for federal tax purposes, with the benefit of limited liability and relief from “double taxation.”1 Some 30 million business owners include business profits on their personal income tax returns.

To be an S Corporation, your business first needs to be set up as a corporation by filling and submitting documents like the Articles of Incorporation or Certificate of incorporation to the appropriate government authority, along with the applicable fee.

Once the incorporation process is complete, all shareholders must sign and submit Form 2553 to be granted the S Corporation designation.2 From there, taxes are handled by the corporation’s shareholders on their individual returns.

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According to Internal Revenue Service (IRS), to qualify for S corporation status, the corporation must meet the following requirements:1

  • Be domiciled in the United States
  • Have only allowable shareholders, which may include individuals, certain trusts, and estates, and cannot include partnerships, corporations, or non-resident alien shareholders
  • Have 100 or fewer shareholders
  • Have just one class of stock 
  • Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations, which are forbidden the S corp structure)

Avoiding Double Taxation

According to the IRS:

Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. It is treated in the same way as a partnership, in that generally taxes are not paid at the corporate level.

This is one of the most appealing features of an S corporation. By contrast, the taxable income of a regular corporation is subject to double taxation, first at the corporate level, then at the individual income tax level.3

For example, a regular “C” corporation has four shareholders with equal shares and reports taxable income of $440,000 in a year on which the company needs to pay a corporate tax of 34% ($149,600). The company subsequently distributes the remaining amount ($290,400) among the four shareholders with each shareholder getting $72,600, which is again taxed.

S Corporations have an advantage here, as they are taxed once. The corporate income, loss, credits, and deductions are “passed through” to shareholders for tax purposes. The shareholders then report the same on their personal income tax returns (Form 1040), which are accordingly taxed at the applicable individual income tax rate.4 Thus an S Corporation is exempt from paying taxes at the corporate level.

This advantage is not granted to all S Corporations, however, as different states and municipalities have variations in tax laws. New York City, for example, imposes a full corporate income tax of 8.85%, though if that business can prove that it has business outside of the city, that portion can be exempt (for more on the NYC-only tax, click here.) California levies a similar charge—a franchise tax—which is 1.5% on net income, or a minimum of $800.5

Form 1120S is used to file the U.S. Corporation Income Tax Return for an S corporation.6 Shareholders’ profits, losses, and deductions are documented in Schedule K-1.7

More Advantages of an S Corp Structure

Self-Employment Tax

Employing an S Corporation structure can lower the self-employment tax. The taxable business income can be split into two components—salary and distribution. Here, only the salary component attracts the self-employment tax, thus reducing the overall tax liability. While in the case of a sole proprietorship, partnership, or LLC, the self-employment tax is applicable on the entire net business income.

The second component of the income comes to the shareholder (owner) as distribution, which is not taxed. By making a “reasonable” division between the two components, there can be a substantial amount of tax savings. It’s considered good to draw approximately 60% of the company’s income as salary since any unreasonable division could be construed as an attempt to avoid taxes.

Independent Life

Unlike a sole proprietorship or LLC (LLC without necessary inclusions in its operating agreement) where the life of the business is linked to the owner’s life or exit from business, an S Corporation has an independent life span. Its longevity is not dependent on shareholders, whether they depart or stay, thus making it relatively easy to do business and look at long-term goals and growth.1

Protective Shield

Personal assets of shareholders are protected by the structure of an S Corp. No shareholder is personally responsible for the liabilities and debts of the business. Creditors have no claim on the personal assets of shareholders in order to settle business debt, whereas personal assets are vulnerable under sole proprietorships or partnerships.

Transfer of Ownership

It’s relatively easy to transfer interest in an S Corporation as compared to other forms of business entities. The sale can be structured in two ways:

  1. An outright sale, where the buyer makes the purchase in one go and there is an immediate transfer of ownership
  2. A gradual sale, where the purchase is done over a period of time. Whichever way is chosen, the transfer of ownership is facilitated through a written sales agreement that formalizes the whole process

The same ease is not there in a sole proprietorship, which is very simple to form but equally hard to sell to another party.8

Credibility

An S Corporation has high credibility among potential vendors, customers, and partners, as an S Corporation is a recognized business structure.

Some Disadvantages of S-Corps

S corporations also carry with them some possible disadvantages. Here is an overview:

Protocols

This form of business entity requires many protocols to be followed, like scheduled meetings of directors and shareholders, meeting minutes, formalized by-laws, maintenance of proper records, and more recordkeeping requirements.9

Compensation Requirements

As discussed earlier, shareholders split corporate income into two parts (salary and distribution). Here, the IRS keeps a closer watch and takes notice of abrupt combinations, such as low salary-high distribution. If this is observed by IRS, then it makes changes accordingly, moving a larger sum under “salary.” which can lead to unexpected higher taxes.10

Extra Work and Cost

As compared to a sole proprietorship, S corporations need more accounting and bookkeeping, which can require the help of a qualified accountant, adding to the costs. In addition, there might be more banking and legal advice needed for business loans, taxation, and other issues. Even state governments and agencies levy more fees and taxes.

For example, Massachusetts levies an extra tax on profits once the company reaches a specified size.11

Added Restrictions

The IRS has laid down many criteria to qualify for the S corporation status which restricts the type and number of shareholders. For example, foreigners can’t be shareholders; all the owners need to be U.S. citizens or permanent residents. Even during a transfer of ownership, the transfer can only be done to specified individuals, an estate, or trusts.

Noncompliance can lead to the IRS taking away S corporation status.1 This restricts the flexibility of the business. In addition, income and losses need to be allocated according to the percentage of ownership, unlike an LLC or partnership where the allocation can be different by setting it up in the operating agreement.

If you have a larger, faster-growing company, sticking with the C corporation might be a better fit. That structure allows multiple classes of stock and no limits on shareholders.12

Tax Changes

In 2013, federal income tax rate increases saw the top rate on individuals who earned $400,000 or more ($450,000 for joint filers) rise to 39.6% from 35% (which also happens to be the top corporate rate).13 Such changes highlight the necessity to monitor changes to tax rates and laws that could make the S corp structure less attractive compared to the regular corporate structure.

The Bottom Line

With features like limited liability and tax savings, the S corporation structure is used by 4.6 million U.S. companies.14 When compared with sole proprietorships or partnerships, S corporations have an edge on aspects like transfer of ownership and continuance of the business. However, S corporations can be disadvantageous for a single-owner, small business (less than $50,000 annually).

Before opting for an S corporation, make sure to check about rules and regulations, and especially tax treatment (and any additional fees and taxes) in your state or city. Also, it would be wise to consider hiring an attorney who can advise you on corporate structures. For more information, see the IRS’s information page on S corporations.

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FINANCE

The Benefits of Working With an Experienced Engineering Firm

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The Benefits of Working With an Experienced Engineering Firm

The engineering services market share increased 8.1% per year from $991.38 billion in 2021 to $1071.59 billion in 2022.

Everyone who designs a building or machine hopes it’ll run smoothly and last for years. It requires a lot of expertise and talent, and an engineering firm can help you achieve those better. However, not everyone can deliver the same results. 

In creating any structure or equipment, you don’t want to lose your investment because of mistakes in the design process. The more skilled and knowledgeable the firm, the wiser it can be to advise you.

If you have questions about the planning or execution of a project, an engineering firm with expertise can be a great asset to you and your business. Please keep reading to learn how it can benefit you.

Gain Insights from Expert Engineers

It can help business owners and decision-makers understand which engineering tactics are reliable and effective. Expert engineers can provide a detailed analysis based on years of working in the field and highlight potential dangers and hazards before they occur. Furthermore, they can also point management and workers toward best practices.

You can bring a wealth of insight on the most current technical information to the table due to their years of experience. It’s an invaluable source of wisdom and guidance for businesses.

Cost Savings from a Proven Process

Working with an experienced engineering firm can have lots of cost savings. It is because they have a thorough knowledge of the resources and techniques they need to complete any project. They can also provide less costly alternatives for resources and materials.

Their expertise also ensures that projects are designed to the highest standards. It reduces the need for costly delays due to unforeseen problems. 

Consider a value-added distributor engineering firm if you are looking for a quality and cost-saving project.

Positive Long-Term Results and Relationships

As a result of the firm’s successful relationships, there is a possibility of getting discounted rates and favorable terms. The firm can even provide engineering solutions when managing legal issues.

An experienced engineering firm also means long-term relationships have an opportunity to develop. It allows both parties to have a better understanding of each other and the ability to build trust. It will also smooth out issues in the future.

Reduced Risks

An experienced engineering firm will be able to foresee issues that may come. On top of that, they can work with the latest technology and tools to make a project run smoother. Having the right resources can help the project reach completion faster and with fewer issues.

Partner with an Experienced Engineering Firm

In conclusion, working with an experienced engineering firm can benefit a project. They possess the technical expertise, advanced technology, and industry knowledge necessary for the project’s success. Consider partnering with a reliable one and unlock the potential of the project.

If you find this helpful in starting your dream project, continue browsing our site for more.

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Can the Characteristics of Candy Boxes be Used for Packaging Purposes?

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Can the Characteristics of Candy Boxes be Used for Packaging Purposes?

Sweets and candy can be packaged in novel ways with the help of packaging for sweets. Because of its durability, it’s great for storing expensive and valuable candy. A wide range of sizes, shapes, & forms is available. Flexible and moldable, it is ideal for manufacturing materials like corrugated cardboard and even Kraft paper. Due to its natural state, it’s cheap and easy to get your hands on. Brands can have it printed in a variety of colors, themes, and unique designs. It is beneficial to the environment because it is recyclable and made from organic materials.

There are currently a large number of stores that sell candy and other sweets. In the last few years, the candy industry has experienced significant growth. In order to better organize and present their products, many manufacturers turn to Custom candy boxes. Incorporating this tool into your marketing strategy can significantly boost the bottom line of any company that decides to implement it. Because of the numerous customization options, it can effectively reach a wide range of potential customers and introduce the brand and product to a variety of niches. This item’s advantages and features are the primary reasons for its reputation as a high-quality packaging solution.

OUTSTANDING STRENGTH AND POWER

Yes, I’m looking for a variety of shapes and sizes of sweets. It is clear that no one will enjoy eating these kinds of sweets. To ensure the product’s appearance and quality and its quality and taste, it is essential to select the appropriate packaging method. As a result, candy packaging is becoming a more valuable commodity in the packaging industry. Kraft and box boards are used to make them strong and durable. Your company’s image can be improved by offering your sweets in the most appealing designs to entice new customers. Additionally, it shields your product from moisture, bacteria that thrive in humid environments, and other potentially harmful elements. To ensure the safety of all of your possessions, you should stock up on this powerful product.

THE DESIGN AND SHAPE CHANGES

Candy should be presented in an interesting and creative way. Containers for the candy should be distinctive and one-of-a-kind. Candy packaging can be easily and quickly customized to meet a variety of needs. For example, you can easily mould the boxes’ surfaces to create new and interesting designs. Cut out windows in these boxes to showcase your confections, for example. Handles and paper layers on top of the boxes can be used to make them more user-accessible. It’s also possible to customize additional options, such as custom-designed inserts or add-ons. They are in a variety of shapes & sizes, including the display Gable Flip Top and the tuck ends round circular.

STUNNING PRINT SURFACE TYPE

Printing isn’t just a choice for supplying your boxes with client-requested data. Packaging that is visually appealing, educational, and fun can also be created with this material. It makes no difference in the cutting-edge printing techniques you use to package your products. You won’t get high-quality prints if you use a container that doesn’t have solid printing surfaces. Packaging like chocolate boxes has excellent printing surfaces. Large printing areas are possible because of the use of Kraft material in these boxes. Offset, digital, and screen printing are all methods they employ.

POSSIBLE WAYS TO PRESENT

Your product’s packaging isn’t enough to persuade customers to buy it. Instead, your items should be displayed in a visually appealing manner. Boxes of candy are a great option in this situation. There is a number of ways to improve the aesthetics of the boxes so that they appeal to your target audience. You could, for example, use eye-catching color combinations and individual colors to enhance their exteriors. They can be styled in a contemporary manner. They can also be printed with designs that correspond to the candy’s flavor and appearance. Theme Options for your boxes are plentiful in this regard, with a wide range of options to choose from.

SUSTAINABILITY TECHNOLOGIES

Plastics used in packaging goods have direct consequences on our environment right now. Non-recyclable materials and chemical solutions make up the product. Due to the difficulty of removing it from the environment, it may be harmful to the environment as a result of environmental harm and environmental damage. Therefore, companies should consider packaging options that are recyclable, reusable and made with organic and sustainable materials. Examples of these environmentally-friendly alternatives can be found in candy boxes. Cardboard, Kraft, or boxboard are common materials used in their construction. They’re safe for the environment, and they’ll help you build a positive reputation for your company in the marketplace.

Marketing For the Brand

The role of marketing in a company’s quest for long-term growth and success has grown significantly. There are many ways to promote your company’s image and use tools to benefit from marketing. Therefore, you should consider purchasing wholesale confectionery boxes and printing them with your company’s logo. Your logo, personal information, slogan, advertising information, and more can all be included in the packaging, which can be customized to your specifications. The text on the outside of these boxes can also be embossed to make them more appealing and effective marketing tools. In comparison to other promotional tools, these boxes are inexpensive and do not have any restrictions. In addition, they could provide long-term marketing benefits for your company with no additional expenditures required.

Rigid boxes and candy packaging have all of the qualities and features listed above, making them ideal packaging solutions. Businesses benefit from its advantages as a result of this. For businesses, it’s a way to reach the target audience they want to reach. Businesses benefit from spectacular product presentations and stand out in any market with this ground-breaking strategy. To get the most out of it, it’s best to buy it in bulk and then customize it to your product’s specifications.

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Realtor Definition

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Realtor Definition

What Is a Realtor?

A realtor is a real estate professional who is a member of the National Association of Realtors (NAR), a professional association. The NAR defines the term realtor as a federally registered collective membership mark that identifies a real estate professional who is a member of the association and subscribes to its code of ethics.1

KEY TAKEAWAYS

  • A realtor is a real estate professional who is a member of the National Association of Realtors (NAR), a professional association.
  • Professionals who may hold the title of realtor include agents who work as residential and commercial real estate brokers, salespeople, and property managers.
  • Realtors are expected to be experts in their field.
  • They must follow the NAR’s code of ethics, which requires agents to uphold a certain standard of duty when working with clients.
  • Compliance with the code of ethics became a requisite for membership in 1924.2

Understanding Realtors

Professionals who hold the title of realtor include agents who work as residential and commercial real estate brokers, salespeople, property managers, appraisers, counselors, and other real estate professionals.

The term realtor is a registered trademark.1 As of October 2021, there were 1,564,547 realtors. That broke down as 68% real estate agents, 20% real estate brokers, and 13% associate brokers.3 Realtors must belong to both a local association or board and a state association.4

Realtors are expected to be experts in their field and must follow the NAR’s code of ethics, which requires agents to uphold a specific standard of duty to clients and customers, the public, and other realtors.

Among its many requirements, the code of ethics says that realtors “shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.”

The code also states that realtors “shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.”

Furthermore, realtors must “pledge themselves to protect and promote the interests of their client” while treating all parties to the transaction honestly.5

1,564,547

The number of realtors as of October 2021.3

Guidelines for Using the Realtor Trademark

The NAR maintains stringent rules on the use of the realtor trademark. Professionals who hold membership as a realtor or realtor-associate on a member board are licensed to use realtor trademarks in connection with their name and the name of their real estate business.

The realtor trademark is prohibited from being used as part of the legal corporate name of members of the association.6 According to the NAR, this is done to avoid the legal issues involved with a corporate name change if a member were suspended or expelled from the association and lost the right to use the trademark.7

Furthermore, the NAR’s guidelines state that if a qualified member uses the realtor trademark as part of their name, it must appear in all capital letters and be set off from the member’s name by punctuation.

The NAR does not use the realtor trademark with descriptive terms or as a description of the vocation the way terms such as real estate broker, agent, and licensee are used. The association also says that realtor trademarks are not to be used as a designation of the licensed status of a professional.86

When Was the National Association of Realtors Started?

The NAR was founded as the National Association of Real Estate Exchanges in 1908. At the time, it had 120 members, 19 boards and a single state association.

What Is the Realtor Code of Ethics?

The Code of Ethics & Professional Standards is a set of rules focused on fair and honest behavior that members pledge to abide by. They concern the manner in which clients must be treated and conflicts should be handled. The Code of Ethics holds members to a high moral standard.

How Are Real Estate Agents Different From Realtors?

Real estate agents are individuals who are licensed by their state to help people buy and sell real estate. Realtors are real estate agents who have opted to become members of the National Association of Realtors. NAR members have access to a wealth of training, tools, and data to help them provide their clients with a completely professional experience.

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