Differences as to taxation,
- C corporations: C corps are separately taxable entities. They
file a corporate tax return (Form 1120) and pay taxes at the
corporate level. They also face the possibility of double taxation
if corporate income is distributed to business owners as dividends,
which are considered personal taxable income. Corporate income tax
is paid first at the corporate level and again at the individual
level on dividends.
- S corporations: S corps are pass-through taxation entities.
They file an informational federal return (Form 1120S), but no
income tax is paid at the corporate level. The profits/losses of
the business are instead “passed-through” to the business and
reported on the owners’ personal tax returns. Any tax due is paid
at the individual level by the owners.
Similarities,
- Personal income taxes: With both C corporations and S
corporations, personal income tax is due both on any salary drawn
from the corporation and from any dividends received from the
corporation.