• Who We Are
    • Firm Overview
    • Our Team
    • International
    • Life at Botwinick
    • Reviews
  • What We Do
    • Accounting
    • Assurance & Attestation
    • Business Consulting & Advisory
    • Contract Compliance
    • Forensic Accounting
    • Tax Compliance & Planning
  • Industries We Serve
    • Contractors
    • Dental Practices
    • Distribution, Logistics, & Warehousing
    • Manufacturing
    • Medical
    • Professional Services
    • Real Estate
    • Retail
    • Sports & Entertainment
    • Tech
  • Work With Us
  • Insights
  • Client Access
  • Contact
  • Client Login
  • Pay Online
  • Visit Our Office
  • LinkedIn
  • Facebook
  • Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
    (201) 909-0090
Botwinick Logo
  • Who We Are
    • Firm Overview
    • Our Team
    • International
    • Life at Botwinick
    • Reviews
  • What We Do
    • Accounting
    • Assurance & Attestation
    • Business Consulting & Advisory
    • Contract Compliance
    • Forensic Accounting
    • Tax Compliance & Planning
  • Industries We Serve
    • Contractors
    • Dental Practices
    • Distribution, Logistics, & Warehousing
    • Manufacturing
    • Medical
    • Professional Services
    • Real Estate
    • Retail
    • Sports & Entertainment
    • Tech
  • Work With Us
  • Insights
  • Client Access
  • Contact
  • Show Search
Hide Search

Blogs

Choosing the Right Business Entity: Is an S Corporation the Best Fit for Your Startup?

Choosing the Right Business Entity: Is an S Corporation the Best Fit for Your Startup?

Ken Botwinick, CPA | 03/20/2025

Are you launching a business and wondering whether an S corporation (S corp) is the best structure for you? If you’re starting with partners, selecting the right business entity is crucial for liability protection, tax benefits, and long-term growth. An S corporation offers several advantages over partnerships and C corporations, making it a popular choice among entrepreneurs.

Key Advantages of an S Corporation

1. Limited Liability Protection

One of the biggest benefits of forming an S corporation is that shareholders are not personally responsible for the company’s debts or liabilities. However, to maintain this protection, it’s essential to:

  • Properly fund the corporation to support its operations.
  • Keep business and personal finances separate.
  • Comply with state regulations, such as filing articles of incorporation, adopting corporate bylaws, electing a board of directors, and holding required meetings.

Failing to follow these formalities can expose shareholders to personal liability.

2. Tax Benefits for Business Losses

New businesses often face financial losses in the early stages. If you choose an S corp over a C corporation, you can take advantage of pass-through taxation. This means shareholders can deduct their portion of business losses on their personal tax returns—up to their stock basis and any loans they provided to the company. If losses exceed this basis, they can be carried forward for future deductions when the basis allows.

3. Profit Taxation and Self-Employment Taxes

When your S corporation begins turning a profit, the income is taxed at the shareholder level, whether or not distributions are made. This can be advantageous because:

  • Unlike self-employed business owners, S corp shareholders are not subject to self-employment taxes on their share of the company’s income.
  • Only wages paid to shareholders as employees are subject to Social Security and Medicare taxes.
  • If the business income qualifies as Qualified Business Income (QBI), shareholders may be eligible for a 20% tax deduction under current tax laws.

Note: The QBI deduction is scheduled to expire after 2025 unless Congress extends it, but potential legislative extensions are currently under discussion.

4. Fringe Benefits Considerations

If you’re planning to offer benefits such as health and life insurance, it’s important to know that while the company can deduct these expenses, they are taxable to any shareholder owning more than 2% of the corporation. This differs from C corporations, where such benefits can be tax-free.

Maintaining S Corporation Status

To preserve your S corporation’s tax advantages and status, you must follow strict ownership rules:

  • Shares cannot be transferred to ineligible shareholders (such as corporations, partnerships, or nonresident aliens).
  • The corporation cannot have more than 100 shareholders.
  • It’s advisable to have each shareholder sign an agreement restricting transfers that could inadvertently terminate the S corp election.

Failing to adhere to these guidelines can result in the business losing its S corp status and being taxed as a regular corporation.

Making the Right Choice for Your Business

Choosing the right business structure impacts your tax obligations, liability protection, and operational flexibility. If you’re unsure whether an S corporation is the best fit for your business, consult with a professional. We can help you evaluate your options and ensure a smooth setup for your new venture.

Contact us today to discuss your business entity selection and start your journey toward success!

Share:
author avatar
Ken Botwinick, CPA Partner, CPA
Ken Botwinick, CPA is a Partner with Botwinick & Company, LLC and has been with the firm for more than 25 years. Ken specializes in providing accounting, tax, and business consulting services to dental and medical practices. He established the firm’s dental practice and is a sought-after lecturer at dental continuing education programs. Ken has his “finger on the pulse of the dental industry,” and with comprehensive experience in ownership transitions, he assists clients in the healthcare industry to reach their professional and financial aspirations and goals.
See Full Bio

About Ken Botwinick, CPA

Ken Botwinick, CPA is a Partner with Botwinick & Company, LLC and has been with the firm for more than 25 years. Ken specializes in providing accounting, tax, and business consulting services to dental and medical practices. He established the firm’s dental practice and is a sought-after lecturer at dental continuing education programs. Ken has his “finger on the pulse of the dental industry,” and with comprehensive experience in ownership transitions, he assists clients in the healthcare industry to reach their professional and financial aspirations and goals.

Primary Sidebar

Related Posts

2026 HSA Contribution Limits Announced by IRS: What Employers and Employees Need to Know

Ken Botwinick, CPA | 05/29/2025

The IRS has officially announced the 2026 inflation-adjusted contribution limits for Health Savings Accounts (HSAs), giving individuals with high-deductible health plans (HDHPs) a slightly higher opportunity to save for medical expenses …

Read More about 2026 HSA Contribution Limits Announced by IRS: What Employers and Employees Need to Know

Independent Contractor or Employee? Avoid IRS Trouble with Proper Worker Classification

Ken Botwinick, CPA | 05/27/2025

As staffing shortages and rising labor costs push businesses to seek flexible solutions, many are turning to independent contractors. While this approach can reduce overhead and increase agility, it also carries legal and tax risks — especially if …

Read More about Independent Contractor or Employee? Avoid IRS Trouble with Proper Worker Classification

Is It Possible to Turn Business Losses into Tax Savings?

Ken Botwinick, CPA | 05/13/2025

Is It Possible to Turn Business Losses into Tax Savings? Even the most financially sound businesses can experience challenging years. Whether due to market shifts, rising expenses, or unexpected events, downturns happen. But here’s the silver …

Read More about Is It Possible to Turn Business Losses into Tax Savings?

Botwinick Logo

Contact Us

365 West Passaic Street

Suite 310

Rochelle Park, NJ 07662

info@botwinick.com
(201) 909-0090
(201) 909-8533

2700 N Military Trl

#240

Boca Raton, FL 33431

info@botwinick.com
(561) 787-0225
Boca Raton Accounting Firm

Follow Us

© Botwinick & Company, LLC. All Rights Reserved. | Privacy Policy | Terms & Conditions
Website Design & Development by SHJ
  • Client Login

  • Pay Online

  • Visit Our Office

  • LinkedIn

  • Facebook