Definition:
A type of business entity classified as a flow-through entity.
Relevance for Arts and Crafts Businesses:
S-Corporations allow an arts and crafts business to be taxed like a sole proprietorship while still providing the limited liability aspects of a regular C-Corporation.
Advantages:
Any losses the business has can be deducted on the shareholder’s Form 1040 up to the amount of the shareholder’s basis in the business.
Disadvantages:
Many employee/shareholder fringe benefits are not business deductions. If the corporation pays for the fringe benefits, the amount has to be reflected as taxable wages subject to employment taxes.
