What is an S-Corp, and what are its advantages and disadvantages?

While corporations and LLCs are both types of legal entities, an S-Corp is a tax designation. Both corporations and LLCs can elect to be taxed as an S-Corp after their entity is formed and have obtained an Employer Identification Number (EIN). One of the main advantages of electing for S-Corp tax treatment is reducing the self-employment tax burden on shareholders or members of your business. Another reason some businesses find S-Corp tax status to be advantageous is it allows corporations to avoid double taxation. However, S-Corp tax status may not be right for every business. While there are potential tax savings for electing S-Corp treatment, those tax savings may not always offset the administrative costs of maintaining S-Corp status, especially for smaller businesses.