What is an S corporation?
One of the most important thing you need to decide when you create a corporation or an LLC is how you want it to be taxed, because there are a few cases in which you have a choice depending on the number of members and whether you have decided to create a corporation or an LLC.
If you have created an LLC and you are the sole owner you can decide to be taxed as either a sole proprietorship or a corporation. If your organization has two or more members, you can choose between a partnership and a corporation.
As a sole proprietorship or a partnership, the income will be reported on your own individual tax returns. As a corporation, you will need to decide between a C corporation and an S corporation. Similar to LLCs, an S corporation is considered to be a “pass-through” business entity and the incomes are reported on the owner’s tax returns without the business being taxed directly.
On the other hand, C corporations are taxed at corporate level. If you receive dividends as a shareholder, you will also be taxed on your income at individual level. Choosing how to be taxed is one of the most important decision you have to make when creating your business. Before making your decision you should consult an attorney to make sure you choose the best option for your business.