Georgia S Corp Advantages Disadvantages

Georgia S Corp Advantages Disadvantages

Georiga S Corporation:

Georgia S Corp Advantages Disadvantages - S Corporation status is recognized by the State of Georgia as long as all shareholders are subject to income tax in the state. Non-resident shareholders must execute a consent agreement to pay Georgia income tax on their portion of the income in order for the S corporation to be recognized for Georgia purposes. A separate state election from the federal election is not required.

License Requirements

Georgia requires most businesses to obtain a license and pay a fee if operating in the state. Please check with the state to make sure your business is complying with the license requirements for your particular profession.

S Corporation is a corporation with 75 or fewer shareholders,that has elected and qualified for a special tax status with the Internal Revenue Service (IRS).

A S Corporation is a separate legal entity, the corporation finances and records are established and maintained completely separate and distinct from the finances and records of the stockholders. Through a resolution adopted at a stockholders meeting held in accordance with the bylaws of the corporation, one or more officers or employees of the corporation are authorized to conduct business on behalf of the corporation. The resolution typically includes an authorization with specified limits to borrow and repay funds as needed for business operations. Credit arrangements are made in the name of the corporation with loan documents signed by the authorized person or persons after the lender has received a certified copy of the authorizing resolution.

The main advantage associated with the S Corporation is that the income passes through to the shareholders, therefore avoiding a perceived double taxation of a C-Corporation.

Georgia S Corp Advantages Disadvantages

Should I form a Georgia S Corp?

The S Corporation:

An "S Corporation" is a corporation that elects to be taxed under Subchapter S of the Internal Revenue Code (enacted in 1958 and periodically amended) and receives IRS approval of its request for Subchapter S status. As a legal entity (an artificial person), the S Corporation is separate and distinct from the corporation's owners (the stockholders). Under Nebraska incorporation law, there is no distinction between a C corporation and an S corporation.

Georgia S Corp Advantages Disadvantages

Advantages of the S Corporation:

  • The independent life of the corporation makes possible its continuation, and the relatively undisturbed continued operation of the business regardless of incapacity or death of one or more stockholders.

  • Fractional ownership shares are easily accommodated in the initial offering of stock.

  • The purchase, sale, and gifting of stock make it possible to have changes in ownership without disturbing the corporation's ability to conduct business.

  • The requirement that the corporation's finances and records be separate from the finances and records of stockholders reduces the risk of unrecognized equity liquidations.

  • With only a few exceptions, under the Subchapter S election for taxation as a partnership the S corporation pays no income taxes and corporation income or loss is passed through direct to the stockholders.

  • To the extent the corporate shield is maintained and other investments and savings of the stockholders are not at risk, the personal life of stockholders is simplified.

  • The annual meetings of stockholders and consultations with legal counsel can provide stimulus for improved communication within the stockholder group (often a family group) and can provide more comprehensive guidance for management.

  • Depending on the corporation's business record and the policies and practices of prospective lenders, access to credit and the ability to secure needed resources may be improved.

  • Earnings representing "return on investment" (interest, rental payments, etc.) are not subject to self-employment tax as long as stockholder-employees receive adequate compensation for labor and management of the business.

Georgia S Corp Advantages Disadvantages

Disadvantages of the Georgia S Corp:

  • Lenders may require personal guarantees from corporate officers as a condition of supplying credit, thus negating the limitation of liability.

  • Conflicts or disagreements among the stockholders may immobilize decision making.

  • Restrictions on the sale of stock and/or buy-back agreements included in the bylaws may prevent minority stockholders from being able to recover the value of their investment in the corporation.

  • Through the processes of gifting and inheritance, stock ownership can become divided among many persons who are not active in the business and they may become a voting block that does not support needs and decisions believed desirable by managing stockholders.

  • Over time, corporation paid benefits for stockholder-employees may become costly and exceed the ability of the business to pay.

  • Employment benefits such as life insurance, health insurance, and housing costs are taxable income to stockholder employees with 2 percent or more stock ownership and to employees who are directly related to persons owning 2 percent or more of the corporation stock.

  • If appreciated assets are owned by the corporation and the corporation is dissolved, significant income taxes on the appreciation amount will be generated.

Georgia S Corp Advantages Disadvantages

Georgia's 2012 Business Tax Climate Ranks 34th

Georgia ranks 34th in the Tax State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. Neighboring states rank as follows: Tennessee (14th), Alabama (20th), Florida (5th), South Carolina (36th) and North Carolina (44th).

Tax Freedom Day Arrives on April 3 in Georgia

Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2011, Georgia taxpayers work until April 3 to pay their total tax bill, ranking them 37th nationally. That's nine before national Tax Freedom Day (April 12). The Tax Freedom Days of neighboring states are: Tennessee, March 27 (ranked 49th nationally); Alabama, April 2 (ranked 43rd nationally); Florida, April 11 (ranked 16th nationally); South Carolina, March 29 (ranked 48th nationally); and North Carolina, April 6 (ranked 27th nationally).

Georgia's State and Local Tax Burden Below National Average

Georgia's 2009 state and local tax burden of 9.1% of income is below the national average of 9.8%. Georgia's tax burden has decreased overall from 9.3% (33rd nationally) in 1977 to 9.1% (31st nationally) in 2009. Georgia taxpayers pay $3,350 per capita in state and local taxes.

Georgia's Individual Income Tax System

Georgia's personal income tax system consists of six separate brackets with a top rate of 6% kicking in at an income level of $7,000. That top rate ranks 23rd highest among states levying an individual income tax. In 2008, state-level individual income tax collections were $920 per person, which ranked 23rd highest nationally.

Georgia's Corporate Income Tax System

Georgia's corporate tax structure consists of a flat rate of 6% on all corporate income. Among states levying corporate income taxes, Georgia's top rate ranks 35th highest. In 2008, state-level corporate tax collections (excluding local taxes) were $98 per capita, ranked 41st highest nationally.


Tax Foundation

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