Learn why the profit stated on an S corporation K1 may be more than the amount actually received by the owner.
An S- corporation is a special tax structure designed for small businesses. The advantage is primarily that there is a single level of tax compared with 2 levels (double taxation) of tax with the traditional C-Corporation, and the business does not have to file with and pay tax to the state of Florida. The total profit for the S-Corporation is divided among the owners and reported on K1s. This means that the each owner pays tax on his/her share of the profits. This arrangement, while very attractive and allows small businesses to pay less tax, comes with a disadvantage for the S corporation owner.
The C corporation stockholder only pays tax on dividends received, while the S corporation owner pays tax on his share of the profits whether or not it is received.
The portion of profit attributed to an owner, and reported on the K1, may not be the same as the amount of cash...Read More>>