<\/p>\n
The owners then pay personal income tax on their share of the profits. In this way, S corporations avoid the double taxation of C corporations. To contrast, C-corp shareholders are not allowed to write off corporate losses to offset other income on personal income statements. This arrangement is referred to as \u201cdouble taxation\u201d and has historically been viewed as the price to pay for a corporation\u2019s limited liability advantages. S corporations are used as a business structure to avoid double taxation, rather than being taxed on business income at both the corporate and shareholder levels. As a corporation, your business will automatically be classified for tax purposes as a C-corporation.<\/p>\n<\/p>\n
<\/p>\n
The structure helps avoid the double taxation that can occur with traditional C corporations when the company and shareholders are taxed separately. By contrast, in an S corp, all business profits “pass through” to the owners, who report them on their personal tax returns (like in sole proprietorships, partnerships, and LLCs). Although, if an S corp has more than one owner, it must file an informational tax return\u2014like a partnership or LLC\u2014to report each shareholder’s portion of the corporate income. Generally, S corps are not taxed at the corporate level and instead have pass-through taxation Accounting Periods and Methods<\/a> which means that profits, credits, deductions, and losses pass directly to the individual shareholder as in a default LLC. In contrast to S corps, C corporations (C corps) are more complicated to run and have double taxation, since they are taxed at the business level and at the shareholder level after.<\/p>\n<\/p>\n<\/p>\n
How Do You Balance Salary, Medicare Tax, and the 199A Deduction as an S Corp?<\/h2>\n<\/p>\n