Posted on 6/30/2009 7:35:14 AM Roberta

S. Corporation or C. Corporation
what is the difference between s & c corp
S. Corporation is considered a “disregarded entity” for tax purposes. It means that the S. Corporation does not pay income tax on its profits. The profits flow through from the company to the owners and the income tax is paid by them. So, if you have a corporation with S. status and it has $100,000 in profits, you, as the owner will have to add that income to your individual tax return and pay income tax on that income. If you have losses from other sources, you will be able to offset some of that income, against those losses, subject to various limitations set by the tax code. C. corporation is not a “disregarded entity” for tax purposes, which means that it has to pay taxes on its profits. So, if the C. Corporation has $100,000 in profit, it will have to pay tax on that income. Lets say the tax is about $25,000. After paying the tax, the corporation has $75,000 in after tax profits, which then are paid to the owners as dividends. Now, the owners have to pay tax on that dividend on top of the tax paid by the corporation (this is called “double taxation”). The dividend will be taxed at 15% federal rate if it meets various criteria of “qualified dividend”



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