The Difference Between an S-Corp and C-Corp

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When filing taxes as a business corporation, it is important to know the difference between an S-Corporation and C-Corporation. Your corporation will automatically be taxed as a C-Corp unless you qualify for and elect to be taxed as an S-Corp. Let’s outline the differences so you can be clear.

Who Pays The Taxes

The main difference between S-Corporations and C-Corporations comes into play when filing a federal tax return, as explained by bizfilings.com. In a C-corp, the corporation pays income taxes. In an S-Corp, the shareholders pay taxes on their share of the corporation’s income. This makes an S-Corp a pass-through tax entity. The profits or losses of the business are passed through to the business and reported to the owners’ personal tax returns.

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When You Pay Taxes

The TaxAct blog explains, “An S corp shareholder will pay taxes in the year their money is earned, but a C corp shareholder will only pay taxes on their business income when the business distributes dividends or when shareholders realize a capital gain, so there can be flexibility on when you pay your taxes, and when you get paid.”

C-Corps can be subject to double-taxation wherein the company pays corporate income tax and the owners of the company are also taxed on the income they make.

Shareholder Differences

A major difference that separates S-Corps and C-Corps is shareholder regulations. Whereas a C-Corp can have multiple levels of shareholders and the stock they own in the company, S-Corps can no more than 100 shareholders all owning one class of stock. In an S-Corporation, shareholders must also be US Citizens.

These differences can make handling taxes for your small business especially confusing. If you recently started a business or are considering filing as an S-Corp instead of a C-Corp, let Schlenner Wenner help.


For more information, e-mail Pat Plamann at pplamann@swcocpas.com or Ryan Finberg at rfinberg@swcocpas.com. Or give Schlenner Wenner a call at (320) 251-0286.