Tax Effects of C Corp, S Corp and LLC: A Concise Description

By launching your own business, some of the most crucial aspects that you as an owner have to understand, are tax effects of the entity which are going to be implemented. Another vital part that you have to figure out, is the processes the entity will need to go through in terms of tax-related laws in a certain country or state.

When the owner of business creates an LLC, S Corp, or C Corporation, the main decision is based on how the government will be going to receive taxes for his or her business. As a rule, tax effects depend on the choice of the business owner; therefore, it is important to hire a tax lawyer who will guide you through this process.

The LLC

If you decide to use LLC as your incorporated entity, you should be ready for the fact that you are going to face several tricky points in the process of your entity’s operation. By using a sole proprietorship, corporation or partnership, you can have several issues with your personal tax returns if there is no party engaged in this business. However, if the organization has multiple owners, the LLC can work with taxes as an entity, rather than individual tax. Keep in mind, that the LLC can proceed as a corporation, and the owner is provided with an opportunity to process state and federal taxes.

 

C Corporation

The C Corporation provides the business owner with tons of advantages. At the same time, you should understand that the C Corporation is not a pass-through entity. The whole process of income goes on the corporate level. All the dividends are shared between shareholders. The role of the tax expert in this process is really vital, since it will help you have a clear understanding about all the available exemptions.

 

S Corporation

Compared to C Corp, the S Corporation is not attached to your business entity, since it is a pass-through the entity which is not taxed. The owner is provided with a unique chance to pay income tax for the entity along with the personal income tax return on the profits made by the business during the year.

Another crucial requirement is that shareholders should have United States citizenship and have to attach the information of both loses and gains of the business.

Changes

It does not matter whether you are the owner of a small company or a huge business; you can always take the benefits of both exemptions and tax benefits in the process of incorporating your entity into an LLC, S Corporation, or C Corporation. Of course, one of the disadvantages of C Corporation is double taxation; however, at the same time, it has lots of advantages such as the possibility of having a big number of shareholders. The more people, the bigger headaches get!

In light of all the information mentioned above, it is better to consult a tax expert and a business attorney who can choose the right business entity which is more suitable for your business.

Everyone in the Prestige Auditors team is always open to help you in your business’s creation process. We will not only choose the right business entity for your business, but also help you choose all the possible deductions which match your business!