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How are taxes different for a S corporation and a C-corp?

Fort Lauderdale residents who have an idea for a business or are considering expanding their business need to have more than a good idea, money and the nerve to take the steps necessary for success. Business formation and expansion are complicated legal endeavors. For example, taxes are a concern for any business, but some do not understand the tax implications of the different types of corporations, like S corporations or C-corporations.

There are two different levels of corporate taxes, and the level hinges on the type of corporation. Knowing the difference, and which is better in the circumstances, is vital. C-corps are used more frequently than S-corps because of their eligibility requirements. Larger businesses that are publicly held are C-corps. These companies will be taxed twice because they are taxed on profits, if dividends are paid. These corporations will file taxes and pay for profits prior to distributing dividends to their shareholders. Stockholders are then taxed as individuals -- double taxation.

An S-corp is not as formal as a C-corp and does not have double taxation. However, there are requirements. The company must: be domestic; not have more than 100 shareholders; only offer a single class of stock; not have corporate or partnership shareholders; not have shareholders who are nonresident aliens; and be eligible as a corporation. Once the business incorporates, the shareholders are required to agree that they will be an S-corp before they inform the IRS.

Running a business is an alluring idea, but there are many different issues. Most should be considered prior to jumping in, but can be complicated and difficult. Examples of this are the C-corp versus S-corp. When deciding, it is imperative to have assistance from an attorney experienced in business law to come to the right choice and use the proper channels to make it a reality.

Source: SmallBusiness.FindLaw.com, "Tax Differences Between C and S Corporations," accessed on Sept. 5, 2017

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