S-Corporations & Partnerships
S-Corporations are called such because they were created under Subchapter S of the Internal Revenue Code. The basic framework is a corporate structure with no more than 100 shareholders. There is no income tax at the corporate level (unlike regular Subchapter C corporations) as all income flows through to the investors/owners for reporting on their individual income tax returns.
There are advantages to this. It eliminates the double taxation that regular corporations are exposed to where their income is taxed at the corporate level and then again as dividend income at the individual shareholder level. Another benefit is the personal protection of corporate status which serves to shield the individual owners from personal commercial liability of the S-corporation.
Partnerships have been around a long, long time and the rules and requirements for tax reporting are well defined and established. In a partnership, each partner is entitled to his or her percentage of profits and losses based on the individual’s investment (or another accepted basis). Profits and/or losses can be shared in different ratios from their investments if the partners all agree. There is no income tax at the partnership level as all income flows through to the partners for reporting on their individual income tax returns.
It is possible for a partner to be a limited or general partner. Limited partners are personally protected from the actions of the general partner or the partnership due to their “limited” involvement in the day-to-day activities of the partnership and their losses are limited to their investment. General partners have full liability for the actions, debts and obligations of the partnership.
BILL SITTIG CPA in Tallahassee is experienced in tax issues related to S-Corporations and Partnerships. Call now to schedule a complimentary consultation at 850-386-2639.