Starting as an S corporation (S Corp.) rather than a C corporation may be wise for several reasons:

• Because income from an S corporation is taxed at only one level rather than two, your total tax bill will likely be less
• Your business may have an operating loss the first year
  • With an S corporation, you generally can pass that loss through to your personal income tax return, using it to offset income that you (and your spouse, if you're married) may have from other sources
  • Of course, if you're expecting a profit rather than a loss -- because, for example, you're converting a profitable sole proprietorship or partnership to a corporation -- this pass-through for losses won't be an advantage to you
• Interest you incur to buy S corporation stock is potentially deductible as an investment interest expense
• When you sell the assets of your S corporation, you may be taxed less on your gain than if you operated the business as a C corporation (because of the dual taxation structure of corporations)
• Your decision to elect to be an S corporation isn't permanent
  • If you later find there are tax advantages to being a C corporation, you can easily drop your S corporation status, but timing is important

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