C and S: The Major Differences in Corporate Identity

When deciding to incorporate, there are many major decisions to be made. These decisions range from how to fund the corporation to how to file tax paperwork. One such decision is deciding whether to file the corporation as a C corporation or S corporation. Fret not, as both corporation forms are entitled to limited liability. Rather, choosing between a C and S corporation form will have tax implications.

A C corporation is subject to double taxation. As a result, the corporation is taxed at a corporate level based on the net income. Shareholders are then also taxed when their profits are distributed. That is why C corporations are considered to be subject to double taxation. S corporations, meanwhile, are not subject to double taxation. S corporations are taxed only once- at the shareholder level. In that aspect, S corporations are viewed very similarly to partnerships or limited liability companies.

C corporations provide more tax planning flexibility. Additionally, shareholders may be protected from direct tax liability. However, filing as a C corporation is most likely not in the best interest of small businesses. That is because it is difficult for a smaller business to absorb the double taxation. Additionally, if you incur losses, it is in your best interest to claim them personally, meaning filing as an S corporation may be the right option for you.

Deciding the type of tax treatment that is best for your corporation is an important decision. When making such an important decision, it is best to consult with business professionals and legal professionals who have years of experience assisting business owners determining their best courses of action. Call the Trembly Law Firm, who has been assisting small business owners for years in such situations, at (305) 431-5678 today to schedule your consultation.