Incorporate?

There is another benefit you expect from your corporation, and that is tax savings. When you use the C-Corporation structure, you have, along with some positive tax advantages, a negative potential for paying income tax twice on the same income. This is due to the fact that, since a C-Corporation is a separate entity, it is taxed just as any other individual taxpayer. In other words, when the corporation makes a profit, it must pay tax on that profit. If you, as an owner/shareholder, do not stay well organized, your corporation may be forced to pay income tax on profits before it distributes what is left of the profits, and then you pay tax again on your personal share.

The S-Corporation was designed to rectify this circumstance, and it works quite well for some school owners. The S-Corporation is taxed much the same as a partnership. That is, the shareholders pay the income tax on the profits of the corporation. The S-Corporation is not responsible for paying income tax on its earnings. The income tax liability on the profits passes through to the owner/shareholder.

The S-Corporation is not a different entity that you file for when you organize your corporation in the beginning. You always form a C-Corporation and then file the proper form with the IRS (Internal Revenue Service) to do business as an S-Corporation. This is called and S-Corporation election. The S-Corporation isn¹t for everybody, and you should give it careful consideration with your tax advisor before choosing the S-Corporation option.