C Corporation vs S Corporation
A separate taxpayer - profits taxed at the corporate level, then again as dividends. A corporation that passes income through to shareholders, avoiding double tax.
What is the difference between C Corporation and S Corporation?
C corp = taxed twice, unlimited shareholders. S corp = pass-through, 100 or fewer shareholders, one class of stock.
| C Corporation | S Corporation | |
|---|---|---|
| In one line | A separate taxpayer - profits taxed at the corporate level, then again as dividends. | A corporation that passes income through to shareholders, avoiding double tax. |
| Example | $100 of profit taxed at 21% leaves $79; paid out as a qualified dividend, the shareholder owes up to 20% more on it. | A small manufacturer owned by six family members elects S status to avoid corporate-level tax. |
| Unit | Clients, Strategy & Tax | Clients, Strategy & Tax |
| Series 65 | Section 3: Client Strategies | Section 3: Client Strategies |
What is C Corporation?
The corporation pays tax on its earnings (a flat 21% federal rate), and shareholders pay tax again on dividends received - double taxation. No limit on the number or type of shareholders, and it can issue multiple classes of stock. Shareholders' liability is limited.
What is S Corporation?
Keeps corporate limited liability but is taxed like a partnership: income and losses flow to shareholders' returns. Restricted to 100 or fewer shareholders, generally US citizens or residents, and one class of stock.