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- Income Tax Liability and Ownership:
- S corps pass losses and profits to shareholders.
- C corps pay taxes separately.
- S corps restrict ownership.
- C corps offer flexibility but can have higher taxes.
- Both limit liability.
Identifying an S Corp
- Contacting the IRS:
- Call the IRS at 800-829-4933 to verify if your company is a C or S Corp. Provide legal name, EIN, address, your name and role.
- Check annual report filings.
- An S Corp has one class of stock while a C Corp has multiple stock classes.
How S Corp Works
- Tax Treatment:
- An S Corp passes income and deductions through to owners.
- Owners pay tax.
- An S Corp files returns and allocates income to shareholders.
- C Corps are separate tax entities. They are taxed twice – at the corporate level and shareholder level.
Identifying S Corp Status
- Contact IRS Business Assistance Line:
- Call the IRS Business Assistance Line at 800-829-4933 to determine if your company is a C corporation or S corporation.
- The IRS can review your business file to identify the type based on any elections made and the type of income tax returns filed.
S Corp Overview
- Business Structure:
- An S corporation (or S corp) combines limited liability features of a corporation with pass-through taxation of a partnership or sole proprietorship.
- Profits are taxed only at the individual level, avoiding double taxation.
Choosing Between S Corp, C Corp, and LLC
- Considerations:
- While both S corps and C corps limit liability, there are differences in tax implications and ownership restrictions.
- An LLC provides personal liability protection with pass-through taxation similar to an S corp, but without ownership restrictions or complex filing requirements.
