When wanting to open a company it is always a great idea to start thinking of the differences and benefits each type of corporation can have on your business. Today two of the corporations we will be focusing on is S corporations and C corporations!
What are the differences?
The differences are that S Corporations do not pay any income tax as a corporation instead the taxes go into the business owners personal tax return. S Corporation shareholder have restrictions. They have a limit of one hundred shareholders, and they can only be US citizens or residents.
C Corporations on the other hand must apply for a corporate tax return that can lead to double taxation. C Corporations can have as many shareholders as they want without having them be from the US.
What are the benefits?
The benefits to each of the corporation are different. An S corporation protects its stockholders by protecting their personal assets. Another benefit is that owners of S corporations have is that they can reduce self-employment deductions on their S corp. This is done by making some the income received salary or distribution. The advantages of a C corporation are that when it comes to shares, they have many different classes. They are also the only corporation that can deduct charitable contribution as an office expense.
When trying to figure out what will be the best way to open your business think of all the differences and the benefits it can bring to you and the company. If you need help in trying to figure out which will be best for you contact us, we can help you decide. Stay tuned for the next blog post where we will be speaking about how S corporations need to provide their employees with reasonable compensation.
The IRS states S corporations are audited more because they want to make sure that S corporation employees are getting reasonable compensation.