Incorporating and Taxes
When you incorporate a company, tax regulations depend upon the type of business you select. Contact your tax professional for more information about the business type you choose:
- C Corporations file IRS form 1120 to report corporate income to the Internal Revenue Service. The IRS taxes company profits at corporate tax rates and dividends paid to shareholders at individual tax rates. For this reason, you may hear tax professionals refer to "double taxation" of a C corporation.
- Corporations can elect "pass-through" taxation by applying to the IRS for status as a Subchapter S Corporation. The S Corporation provides the same protection from personal liability. However, owners can report their share of profit and loss in the company on their individual tax returns. The S Corproation files IRS form 1120S to report income. S Corporations have a number of restrictions. Most notably, only U.S. citizens or permanent residents may own an S Corporation. An S Corporation may not have more than 100 shareholders.
- Like a sole proprietorship or partnership, an LLC enjoys pass-through taxation. This means that owners (also known as "members") report their share of profits or losses in the company on their individual tax returns. The Internal Revenue Service (IRS) does not assess taxes on the company itself. This avoids the "double taxation" that general, or "C," corporations experience. In a C corporation, the IRS taxes profits at the corporate level and dividends at the shareholder level.
We make the process of forming your new corporation or LLC fast and easy. Form your new business online or call a Business Specialist at 800-818-6082 (toll-free) or 302-636-5440.
