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How S-Corporation differs from C-Corporation?

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Category : > Article Directory To Open An S Corporation
Posted On : Thu Aug 27th,2009

Choosing a right entity structure is part of the initial planning and there are always merits and demerits, but that all depends what are your goals. A comparison between a corporation and S Corporation is described below to understand the characteristics of each entity.

Characteristics of a C Corporation and an S Corporation:


Some basic but important features are discussed below to understand the difference between the  two entities which are C Corporation and S Corporation.


  • One of the first things that those forming an S Corporation find most appealing is that those with S Corporation status are not required to pay both corporate and individual income taxes. However it is only fair to note that because the shareholders are not subject to double taxation, they may end up paying a higher personal income tax rate. When total taxes are considered over the course of the year, both on the corporate and on the individual level, those belonging to an S Corporation almost always end up paying fewer income taxes.

  • In the Sub Chapter S Corporation, The Internal Revenue Service charges penalties and interest to each stockholder which can be significant.


  • Employment tax rules are also favorable under an S Corporation versus a C Corporation. In Corporations such as the S Corporation where shareholder-employees are in smaller numbers, it is possible for all of the corporation's profits to be extracted in the form of a salary that is paid. This means that the corporation can pay out its profits in the form of wage increases or bonuses at the end of the year, making the taxable amount for income zero.

  • A reasonable payroll is required in either S Corporation and C Corporation

  • A C corporation has a lower tax bracket compare to an S corporation, because the S corporation stockholders report income on the Income Tax Return, whereas C Corporation is not a pass through entity.

  • S Corporation report income on the IRS form 1120S, whereas the C Corporation uses the IRS form 1120 to report the income.

  • The S Corporation issue form K1 to all the stockholders whereas the C Corporation does not.






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Comments (7)
Collingwood   wrote on : Tue May 04th,2010
Do shareholders have to take a salary in an S corp? Can they just take distributions? How about an LLC?      View Detail
Reply :

Yes, In S-Corporation you are required to withdraw reasonable salary. In LLC answer is "no" members are not required to withdraw salaries.

Alec Stewart   wrote on : Tue May 04th,2010
One partner of s-corp wants to retire their shares of privately held stock; the other partner wants to place a value on it to buy back. What are the tax implications?      View Detail
Reply :

Gain or loss will be determined based on the basis of that specific partner

angie   wrote on : Tue Jul 20th,2010
my pastor wants to make our ministry/church a corporation and become a non-profit organization. Which corporation would be best in this case s or c corporation?      View Detail
Reply :
Dear Angie:

Thanks for choosing for your business needs. You have to form a non-profit organization. You can either use the following link to apply for or can call us for free consultation at 516.822.3100.

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