Jones and Turner are interested in possibly changing the structure of their business to an S Corporation and would like to know more about this entity. They are excited by the fact that the S Corporation is a “flow through entity” and the fact that they don’t pay income tax.They also heard that if they pay themselves dividends as S Corporation shareholders, they won’t have to pay any Social Security or Medicare tax (payroll taxes).
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Prepare a memorandum for the business owners using a minimum of 800 words explaining the following;
•What are the requirements for structuring a business as an S Corporation?
•Discuss at least two advantages to structuring a business as an S Corporation
•Explain how income from the S Corporation taxed; include in your discussion on taxation of S Corporation income, the forms (including their names and numbers) utilized in reporting income and paying tax to the IRS.
•Finally, explain to the business owners what the requirement is for corporate officers who work in their own S Corporations.
◦How are Corporate Officers required to be compensated and why?
◦Explain both the ethical and legal issue regarding their suggestion that they be paid in dividends thus eliminating the requirement that they pay Social Security tax.