With tax season approaching, many business owners are reflecting on their company's entity status and how it relates to their tax liabilities. By far, the most popular corporate tax return filing over the past decade has been that of the S corporation.
"With the exception of taxes on certain capital gains and passive income, an S corporation is exempt from federal income tax," writes Susan Schreter for Fox Business. "This means that most S corporation profits and losses are 'passed through' to the individual shareholders, just like a sole proprietorship."
C corporations, on the other hand, must pay income taxes on both the corporate and personal levels. However, there are a few disadvantages of the S corp, such as how qualified firms must be incorporated in the U.S. and shareholders must be U.S. residents.
There is also a limit on the number of shareholders an S corporation can have - 100 - whereas LLCs and C corporations can have an unlimited amount, which makes large public offerings impossible.
Ultimately, each entity type has its own functions and its own ups and downs. What's important is that businesses looking to incorporate in California consider how the tax and legal stipulations will affect them and file accordingly.
Tags : entity types, incorporation information, s corp
Posted: Feb 21st, 2011