Avoiding Double Taxation:
Unlike C Corporations, where profits are taxed at both the corporate and individual levels, S Corporations enjoy pass-through taxation. This means that business profits are only taxed at the individual shareholder level, potentially reducing the overall tax burden.
Self-Employment Tax Savings:
Unlike other pass-through entities, S Corporation shareholders may also be employees of the business. This allows them to receive a salary in addition to their regular distribution of profits. While an actively participating partner in a limited partnership would be liable for self-employment taxes on his or her distributive share of partnership income, the S Corporation shareholder/employee would only be liable for FICA withholding on the salary taken (plus payroll tax at the entity level). The remaining income of the S Corporation is only liable for income tax, saving the shareholder from a larger self employment tax liability.
Flexibility in Income Allocation:
S Corporations do not have the ability to specially allocate items of income, loss, expense, etc. among partners that a partnership/LLC does. Income and other K-1 items must be allocated based on a per share/per day basis.
Tax Deductions and Credits:
S Corporations can take advantage of various tax deductions and credits, including those related to healthcare, retirement plans, and certain business expenses. These deductions can contribute significantly to overall tax savings.