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How are S corporations taxed?

When you first set up a new business, it is important to consider the legal structure that you want to put in place. You might choose to work as a sole proprietor, in a partnership, or you might opt for setting up a limited liability company (LLC). If you do choose to set up an LLC, the tax implications will depend largely on whether it is an S corporation or a C corporation.

This blog will provide a brief overview into the tax implications of having an S corporation in relation to having a C corporation.

C corporations

C corporations are a great option from those that want to protect their personal assets when setting up a business. They are quite complex because of the formalities that must be abided by, however. They are taxed at two different levels; one for the shareholder and one for the corporate level.

S corporations

S corporations are also quite complex because they also must abide by formalities so that personal assets can be protected. However, they are not taxed at the shareholder and corporate levels; they are only taxed once. This is preferable to C corporations, however, in order to be eligible, businesses should be domestic and have less that 100 shareholders. They should also have one type of stock and not have shareholders that are nonresident aliens.

If you want to inquire about the tax benefits from having an S corporation, you should speak to a trusted legal advisor who can explain to you the benefits that you could enjoy based on your specific situation.

Source: Findlaw, "Tax differences between s and c corporations," accessed Sep. 22, 2017

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