#12 | Business Entities- S Corporation

Practical Tax with Steve Moskowitz

In this week's episode, Steve and Cliff discuss the benefits of choosing an S Corporation as your business entity. S Corporations provide a myriad of benefits as a business entity, but there are some formalities that must be maintained. Learn more about S Corporations in this episode. Episode Transcript Intro: You're listening to the Practical Tax podcast with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz LLP, a tax law firm. Steve Moskowitz: Welcome to our podcast, and today we're going to be talking about business entities, corporations, certain types of corporations, like S-corporations, partnerships, LLCs. And, I'd like to introduce my friend and colleague the manager of our tax department at Moscowitz LLP, Cliff Capdevielle. Cliff is both the tax attorney with many years experience, and also an accountant. Cliff, tell us about these different business entities. Cliff Capdevielle: Sure, Steve, so one of the first questions that we need to answer for any new client, and oftentimes for returning clients, is what's the best way to structure your business? Is that gonna be as a sole proprietorship, a C-corp, an S-corp, or a partnership structure, like an LLC or limited partnership? And there are different answers depending on the type of business. So, the simplest form of structure is what's called a sole proprietorship, and that's when you're essentially doing business in your own name or as a DBA. It's the easiest business structure to set up, but it's not a separate legal entity. And for that reason, we usually don't recommend it. As you know Steve, a lot of what we do is asset protection. We want to, we wanna the business owners assets and the sole proprietorship does not separate personal assets from the business assets. And as a result, we usually don't recommend the S-corporation or sorry, the sole proprietorship. Instead, we usually recommend an S-corporation or an LLC, depending on the type of business. Steve Moskowitz: Somebody has a sole proprietorship and something goes wrong in the business, they could sue and take away the person's personal assets. Cliff Capdevielle: That's the problem with it, Steve. And I know you've seen this in your practice, comes up all the time, and we've also seen businesses survive and owners keep substantial assets, if they've properly separated their assets from the business assets. Steve Moskowitz: You know, you told us about different forms of assets and corporations is one of them, but sometimes a business owner and say, "But Cliff, you know if I form a corporation, it's great for asset protection." which I'll ask you to explain to us. But people say, "Well, wait a minute, I don't wanna be paying taxes twice." First, the corporate taxes and then the personal taxes. How do we handle that? Cliff Capdevielle: Yeah, so today we're gonna talk about S-corporations. And S-corporations are considered pass-through entities for tax purposes. So, what does that mean? That means that there's no tax, typically at the corporate level. The tax attributes pass to the individual owners. So, you're only paying tax at one level with an S-corporation, or an LLC. Just like you would with a sole proprietorship. But the advantage, the huge advantage of the pass-through entity is that asset protection that we mentioned. Steve Moskowitz: So, does that mean that if the business gets in trouble that the assets of the owner are safe? Cliff Capdevielle: If they run the business properly, and they mind their Ps and Qs, they can potentially protect their personal assets from the assets of the business. Steve Moskowitz: And Cliff, what happens if the business makes a loss? Cliff Capdevielle: Well, in that case, in many instances the business can pass through those losses to the individual owner, who can deduct those losses against other income. Steve Moskowitz: So, if the owner made a loss and his or her spouse had...