The National Directory of Certified Public Accountants

Ask A CPA - Business Start-ups

What Are Some Advantages And Disadvantages Of Selecting To Be A S Corporation Compared To Other Entities?

Some advantages are: there is limited liability; and the entity avoids double taxation of profits as is the case with C Corporations. The profits that are passed through to the shareholders are not subject to SE tax as in a partnership. Some disadvantages are: that the shareholders pay tax on earnings even if they are undistributed; the contributions limits to a qualified retirement plan are based on shareholder/employee wages, not the overall profits as with a Sole proprietorship; and it is less flexible in choosing a tax year.

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