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What is a Sub-S corporation?

One of the big questions a beginner in the world of business is going to have to ask himself or herself is what type of business organization they are going to use for their operations. There are many options to choose from, and often the right fit depends on how one's business is set up. The right business organization gives a new enterprise flexibility while putting it in the most advantageous legal and tax situation possible.

For instance, a new business owner or group of owners in Fresno, California, has the option of forming what is commonly called a "Sub-S" corporation. It is important to note first off that, under California law, for-profit corporations are handled the same way; in other words, there is no California "Sub-S" corporation.

Instead, what the term describes is a certain type of corporation which, if qualified, gets the benefit of shareholders being allowed to pay corporate taxes at their individual tax rates. This is in lieu of the corporation itself having to pay taxes at the federal corporate which, for all but the highest earners, is substantially higher than one's individual tax rate.

For smaller businesses owned between family members or close friends, organizing as a Sub-S corporation can save thousands of dollars in tax liability and thus increase the profitability of a family held business.

However, certain legal restrictions apply to who can ask for Sub-S status. Moreover, on a practical level, a Sub-S corporation is not the right choice for every business. Still, it may pay off for a small business owner to discuss the possibility of a Sub-S corporation with an experienced Fresno business law attorney.

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Law Office of Jeffrey B. Pape, P.C.
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Clovis, CA 93612

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