Masonry Magazine August 1997 Page. 23
New and Improved Business Planning S Corporation Tax Benefits Part II
More than 1.7 million small businesses, including many masonry contractors, operate as S corporations according to the Internal Revenue Service. Now, however, recent changes to our income tax laws have made S corporations easier and more rewarding to use in operating masonry businesses.
In essence, S corporations are a special type of corporation that allow profits and losses to "flow through" to the individual shareholder or shareholders. In other words, the corporation does not usually pay Federal income taxes. Many family-owned masonry contracting businesses are S corporations because our unique tax rules allow the owners to be taxed as individuals while protecting them with the limited liability normally associated with corporations.
In other words, an S corporation is simply an incorporated contracting business entity that has chosen to be treated as a partnership for income tax purposes passing on income and losses to the shareholder(s).
Under the new laws passed prior to Labor Day 1996, the maximum number of eligible shareholders of an S corporation is increased from 35 to 75- but only for years after 1996. S corporations will also be permitted to own shares of stock in regular or 'C' corporations after 1996, making the S corporation entity more attractive to growing and expanding masonry businesses.
Best of all, the new tax laws allow any masonry contracting business that terminated its S corporation election within a five-year period beginning immediately preceding the passage of the new law on August 20, 1996 to reelect S status without the consent of the Internal Revenue Service.
As mentioned, even under the old tax rules, an S corporation does not pay income taxes. Instead, the corporation's income and expenses are divided.