Corporations: C Corp and S Corp
Maybe the best business entity for your business is a corporation. The benefits to choosing a corporation structure are great. Personal liability is non-existent.  The corporation itself is liable for taxes, liability, debts and any other legal obligations. The lifetime of a corporation is perpetual, with no expiration date. If you, the founder, passes away or otherwise leaves the corporation, the entity itself goes on and does not end just because you have left. This is great for retirement options, estate planning and the like. The business structure of a corporation is more complex than a sole proprietorship or an LLC and the IRS’s tax codes on a corporation are even more complex! This is where the distinction between an S Corp and a C Corp will come into play.
C Corporation
According to the Internal Revenue Service's tax code, a C corporation is a business entity that is separate from its owners and in such, it is also taxes separately from its owners. In the case of corporations, shareholders (owners) receive dividends from the gains of a corporation. In this case, the individual is tax separately on any and all dividends that they receive from the corporation. This may sound to you like double taxation. The IRS doesn’t look at it that way, but essentially, you will be taxed as an individual and your corporation will be taxed as a corporation. This is usually a big determining factor on whether or not someone chooses to create a corporation as their business entity type.
But wait! There are tax-related advantages to structuring your business as a corporation. If a small C Corp reports losses in any given year, or for several years for that matter, it is far less likely that the C Corp will be audited by the IRS compared to other business entity types like a sole proprietorship and/or an LLC. Also, many expenses related to employing employees are one hundred percent deductible as a C Corp entity. These advantages can sometimes outweigh the disadvantages and help determine if a C Corp is right for your business situation.
S Corporation
In an S Corp structure, the double taxation disadvantage is done away with. All gains and losses of an S Corp are “passed through” to the owners and shareholders. Many times, new business owners see this entity type as the most advantageous. Please remember to always consult a tax specialist before making any decisions as large as business entity structure.
While we have talked about advantages and disadvantages of corporation types, we are talking about them on a federal level. Any state that you form your corporation in will have its own set of laws, filings, regulations and tax structure.
Whether your needs are for estate planning or general estate needs, Abowitz Law Offices offers the most personalized service available as an estate lawyer Philadelphia.
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