S Corporations vs. C Corporations

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.

C 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 Corporation 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.

Form your S Corporation or C Corporation online or contact a Business Specialist at 800-818-6082 (toll-free) or 302-636-5440.