Question: What are the Disadvantages of Electing S Corporation Status?

An S corporation is a corporation in which the taxes pass through to the owners. S corporations are formed by first incorporating a business in a state, then electing S corp status with the IRS.

Answer:

Disadvantages of S Corp Status
Mos of the disadvantages of S Corp status relate to the complexity of the corporate form of business.

These disadvantages include:

• Incorporating a business is a complex process, which should be done with the help of an attorney.
• More complex financial record-keeping requirements. A corporation balance sheet, for example, requires more complex accounting than a balance sheet for a sole proprietorship or LLC.
  
• More complex tax returns and tax issues. Corporate taxes are more difficult and complex to prepare, with more schedules and issues relating to ownership and dividends.
  
• State fees and reporting requirements are more detailed and onerous for corporations than for non-corporations.
  
• There are restrictions on ownership of S corps, including limits on the number of shareholders and citizenship requirements for owners.

S corporations don't qualify for the tax credit for self-employed health care premiums.