As an owner, choosing the right tax treatment for your business entity can be daunting. Among the many options available, S Corp and C Corp are two common tax treatments that can leave many scratching their heads.
However, the truth is they are not as complicated as they may seem.
In this article, we’ll explore the differences between S Corp and C Corp and help you determine which option is best suited for your business.
What Are S Corps and C Corps?
First, let’s define what S Corps and C Corps are. S Corp and C Corp refer to subchapters S and C of the Internal Revenue Code, respectively. They are tax designations given to a corporation, determining how it is taxed.
S Corp
S Corp is a tax designation given to a corporation that meets specific requirements.
One significant advantage of an S Corp is that it avoids double taxation, as it only pays taxes once on the ownership income. This means the corporation’s income is passed through to the shareholders, who then report it on their tax returns.
C Corp
On the other hand, a C Corp is a standard corporation that pays taxes on its profit and, secondly, on the income of the ownership.
In other words, a C Corp is taxed twice. First, the corporation pays taxes on its income, and then the shareholders pay taxes on the dividends they receive.
Why Choose a C Corp Over an S Corp?
While S Corp offers significant tax advantages, there are circumstances in which a C Corp in Florida may be a better fit for your business.
Foreign or Corporate Ownership
One notable drawback of an S Corp is that it is not allowed for foreign or corporate ownership. You are forced to use a C Corp if you have foreign or corporate shareholders.
More than 100 Shareholders
Another reason to opt for a C Corp is if you have more than 100 shareholders. According to the law, if you have more than 100 shareholders, you must have a C Corp.
Seeking Venture Capital
If you’re planning to seek venture capital, a C Corp is likely the way to go. Venture capitalists prefer investing in C Corps because they offer more flexibility regarding stock options, which is not possible with an S Corp.
Contact J Muir & Associates
Choosing the right tax designation for your business can be overwhelming.
However, understanding the differences between S Corp and C Corp can make decision-making easier. While S Corp offers significant tax advantages, there are specific circumstances in which a C Corp may be a better fit.
A C Corp is likely the way to go for foreign or corporate ownership, having more than 100 shareholders, or seeking venture capital. Ultimately, choosing S Corp and C Corp depends on your unique business needs and goals.
Are you still wondering which one might work for you? Contact us today.
