S corporation: A tax-friendly option for some Texas enterprises

When planning to incorporate, the tax structure you choose can affect your company’s financial and operational future. Both S corporations and C corporations offer limited liability protection, but differences in taxation and ownership can make an S corp the preferred choice for some businesses.

Here are some considerations for choosing between a C corp and an S corp for your Texas business.

Offers efficiency for small businesses

S corporations allow profits and losses to pass directly to shareholders’ personal income, avoiding the double taxation that C corps endure. It can benefit small to medium-sized enterprises that prioritize tax efficiency and simpler corporate formalities.

Simplifies taxation for solopreneurs 

For sole owners, the S corp structure can be a boon. It eliminates the burden of double taxation as previously mentioned. Instead, S corporation owners report their business profits and losses on their personal tax returns, streamlining the taxation process.

Minimizes taxes for the self-employed

Since limited liability company (LLC) owners are considered self-employed, many elect S corporation status to reduce self-employment taxes. The S corp election treats them as employees for tax purposes, potentially leading to significant savings.

Supports planned growth for locals 

S corporations are ideal for businesses that do not intend extensive expansion, especially those with no interest in foreign investors. S corps are capped at 100 U.S. citizen or resident shareholders, providing a structure that supports controlled local growth.

Of course, there is much more to learn about corporations before you make your decision. Tailored legal guidance from someone familiar with business formation in Texas can help you choose wisely.