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S-Corporation Vs C Corporation Tax Returns – The Similarities and Differences
When planning to re-structure, expand or diversify your business, you are usually caught up between two choices – whether to register your business as an S-Corporation or a C-Corporation. This is mainly for the purpose of filing tax returns for Corporation Hayward/Fremont.
While there are a number of similarities and differences that exist between these two types of corporations, the main difference lies in their taxation policy. Here are a few such parameters to help you decide which type is best suited for your business needs –
Setting up of both C-corporation and S-corporation is a simple and uncomplicated process.
Initial formation of both the corporations is done by officially filing Article of Incorporation or Certificate of Incorporation with the state. Both enjoy unlimited life as corporations and can remain operational even after the death of the owners. For the purpose of filing tax returns for corporations Hayward / Fremont and other such issues, both are considered and classified as separate legal entities.
Management setup is also similar for both these corporations with shareholders, directors and officers forming the major part of the administrative structure. Directors are appointed by the shareholders, who in turn select competent officers to take care of the day to day functioning and operations.
Everyone who receives salary, dividends or part of the profit is required to file tax returns based on the total income earned thereof. Both the C-corporation and S-corporation allow individuals to accumulate additional capital by selling stocks and shares.
Both corporations are considered as separate legal entities and the major difference lies in their tax policies.
C-corporation needs to file corporate tax returns (form 1120) and pay taxes at a corporate level. Also if the corporate income or profits are passed on as dividends to the shareholders, they are required to pay income tax on the same. This is known as double taxation – first at the corporate level and then at the individual level. However, the tax rates are kept at a lower level i.e. 15%.
In case of S-corporation, only the shareholders and officers are required to pay taxes on the amount received as dividend or profit share. S-corporations do file an informational federal return (form 1120S), however they do not pay any taxes at the corporate level.
Shareholders of S-corporation can share losses, for an amount less than or equal to the basic value of their stocks. In some states such as California, S-corporations must pay 1.5% of their net income as franchise tax.
S-corporation is subject to some stringent rules and regulations in terms of taxation – for e.g. submission of form 2553 signed by all shareholders, form 1120S to be filed along with schedule K 1 for each shareholder during a financial year, elections at regular intervals and so on.
Number of shareholders in an S-corporation cannot exceed 100 and they should all be U.S citizens, while for C-corporations there is no such limit. Also, certain groups such as banks, insurance companies, and some affiliated group of corporations cannot apply for S-corporation status.
S Corporation offers the best of both worlds by combining the tax advantages of a sole proprietorship with the limited liability and stability of a corporate structure; whereas, C-corporation offers a broader outlook, flexible rules and regulations and greater opportunities for business growth. The option you choose must offer maximum benefit in terms of filing tax returns for Corporations Hayward/Fremont.


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