S corporation

S corporation is another popular corporation legal structure. S corporation tax advantages are similar to the pass-through tax advantages given to LLC and partnership owners. However, S corporation tax advantages are not quite as good as the tax advantages for an LLC. Examples of the difference between s corporation and llc and how S corporation tax advantages are not as good as for LLC are shown below.

Profit allocation of S corporation

LLC owners and partners are not required to allocate profits in proportion to ownership interests in the business. They can make what are known as “special allocations” of profits and losses under the federal tax code. S corporation shareholders cannot do this.

Deduct more business losses

S corporation losses

The amount of S corporation business losses that can be passed through to an S corporation shareholder is limited to the total of the S corporation shareholder’s “basis” in his stock. That is,

• the amount paid for stock
• plus and minus adjustments during the life of the S corporation
• plus amounts loaned personally by the shareholder to the S corporation.

Losses allocated to an S corporation shareholder that exceed these limits can be carried forward and deducted in future tax years if the shareholder qualifies to deduct the losses at that later time.

LLC and partnership losses

In contrast, LLC owners and partners may be able to personally deduct more business losses on their tax returns in a given year. The reason is that LLC members and partners get to count their pro rata share of all money borrowed by the business, not just loans personally made by the member or partner, when computing how much of any loss allocated
to the member by the business can be deducted in a given year on an individual income tax return.

• How to Convert to S Corp
• S Corp vs LLC

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