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What benefit does a Sub-S corporation offer?

One of the big questions an aspiring entrepreneur in Scottsdale, Arizona, has to ask is how he or she wants to legally structure his or her business. There are many alternatives out there, and choosing the right one involves a number of financial and legal questions.

One type of business organization that many start-ups and small business owners prefer is the Sub-S corporation. Like all corporations, a Sub-S is a creature of business laws and rules which were designed to protect business owners and encourage them to take risks. The Sub-S also has some potential tax advantages for the business's owners.

Basically, a traditional corporation, or Subchapter C, gets taxed at the federal or state corporate income tax rate, which is currently 35 percent. In other words, the corporation gets taxed as if it were a separate individual in a 35 percent marginal tax bracket.

However, many owners of a small family corporation would, based on the income they earn, get taxed at a much a lower marginal tax rate. In order to help these corporations out, the federal government allows them to form as a Sub-S corporation. Assuming the corporation can be and is validly constituted as a Sub-S, then each family shareholder gets taxed on his or her share of the corporate earnings, but at his or her own tax bracket, which could be 15 percent or even lower.

Forming a Sub-S is not simply a matter of signing a paper saying it is so and turning it in to the Internal Revenue Service. Rather, creating a Sub-S may require some important legal and financial steps, as there are certain requirements for A qualified commercial attorney in the Scottsdale area can be of valuable assistance in completing these steps.

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