An Interactive Guide to S Corp Tax Benefits
Explore the financial advantages of the S Corporation structure.
1. Pass-Through Taxation
The most fundamental benefit of an S Corp is avoiding "double taxation." Profits are taxed only once at the shareholder level, unlike C Corporations where profits are taxed at both the corporate and shareholder level.
C Corporation (Double Taxation)
Corporation Profit
$100,000
Corporate Tax
(e.g., 21%)
Dividends to Shareholder
$79,000
Personal Income Tax
(on dividends)
S Corporation (Pass-Through)
Corporation Profit
$100,000
Income "Passes Through"
(No Corporate Tax)
Income on K-1 to Shareholder
$100,000
Personal Income Tax
(on business profits)
2. Savings on Self-Employment Taxes
S Corp owners can be employees. By paying themselves a reasonable salary and taking the rest of the profits as distributions, they can significantly reduce self-employment (FICA) taxes, as distributions are not subject to these taxes.
Total FICA Tax (15.3% on Salary):
$9,180.00
Amount not subject to FICA:
$60,000.00
*This is a simplified illustration. Income tax is still due on all profits. Consult a tax professional.
3. Qualified Business Income (QBI) Deduction
Eligible S Corp shareholders can often deduct up to 20% of their Qualified Business Income on their personal tax return, significantly lowering their effective tax rate.
Potential QBI Deduction (20%):
$16,000.00
*The QBI deduction is subject to various limitations based on income, W-2 wages, and property. This is a simplified calculation.
4. Deductibility of Business Losses
If the S Corp has a loss, shareholders can generally deduct their share on their personal return to offset other income. However, this deduction is limited by the shareholder's "basis" (their investment in the company).
Scenario: Loss is LESS than Basis
Business Loss
-$20,000
Shareholder Basis
$50,000
Deductible Loss
-$20,000
The full loss can be deducted on your personal return, potentially reducing your overall tax.
Scenario: Loss is MORE than Basis
Business Loss
-$50,000
Shareholder Basis
$20,000
Deductible Loss
-$20,000
($30,000 suspended)
The loss deduction is limited to your basis. The remainder is suspended and may be carried forward to future years.
5. Pass-Through of Credits & Other Deductions
S Corps don't use deductions and credits at the corporate level. Instead, they pass them through to shareholders on Schedule K-1 for use on their personal tax returns. Click each card to learn more.
Section 179 Deduction
Immediate expensing of business property.
Allows for immediately deducting the cost of qualifying assets rather than depreciating them over time.
Reported in **Box 11** of Schedule K-1.
Charitable Contributions
Deduct the company's donations.
The corporation's charitable giving is passed through for shareholders to deduct on their personal itemized deductions.
Reported in **Box 12** of Schedule K-1.
Business Tax Credits
R&D, energy, work opportunity, etc.
A wide range of credits that directly reduce your tax liability are passed through to shareholders.
Reported in **Box 13** of Schedule K-1.