PrintFor federal tax purposes, it's often best for a start-up company to be an S corporation rather than a regular corporation. This is so even though recent changes in tax rates have made this decision a bit more complex. Still, to make sure an S corporation is best for you, speak to a knowledgeable accountant or tax advisor. Also keep in mind that a limited liability company (LLC) may be an even better choice (for details on LLCs, check out Limited Liability Company Basics).
Starting as an S corporation rather than a regular corporation may be wise for several reasons:
- Income from an S corporation is taxed at only one level rather than two — your total tax bill will likely be less.
- If your business operates at a loss the first year, you can pass that loss through to your personal income tax return, using it to offset income that you (and your spouse, if you're married) may have from other sources.
- Interest you incur to buy S corporation stock is potentially deductible as an investment interest expense.
- When you sell your S corporation, your taxable gain on the sale of the business can be less than if you operated the business as a regular corporation.
