What’s the difference between a C and S corporation? – watch video

What’s the difference between a C and an S corporation?

A corporation is exactly the same, whether it is a C or S corporation from a liability standpoint.  Both C and S corporations provide precisely the same amount of liability protection.  They’re only different with respect to the way they are taxed.

When a corporation is initially formed and nothing is done whatsoever, it is taxed under subchapter C of the Internal Revenue Code.  That means that it pays its own taxes on its earnings; and when it distributes its earnings to the shareholders, they pay tax on their dividends that they receive.  That can result for many little corporations in a double level of tax.  To avoid that, a corporation can make an election by filing IRS Form 2553 to be taxed as a subchapter S corporation.  It then would only be taxed once – at the shareholder level.