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What’s the difference between C-Corp, S-Corp, Sole Proprietorships and LLC?
C-corps are mostly publicly-traded companies, meaning they can allocate stock and sell on the stock market. They are governed by a board (CEO, CFO, etc) and are taxed on both company profits and the shareholders' dividends. This means C corporations are essentially double-taxed - pays corporate income tax on after-tax income, after offsetting income with losses, deductions, and credits; and shareholders pay personal income taxes on dividends.
There is a lot of bookkeeping that goes along with C-corporations, and the company finances are usually reported to the state attorney general. Corporations are owned by shareholders, personal assets are protected and there's a multitude of tax write-offs.
An S-corp is a tax election approved by the IRS and provides owners with limited liability protection. To become an S-corp you must incorporate your company within whatever state you choose and then file form (2553) requesting the S-corp tax election from the IRS who ultimately determines if your company is eligible to be considered an S-corp.
The IRS accepts S-corp election applications no more than two months and 15 days after the beginning of the tax year the election is to take effect, or anytime throughout the year preceding the year the election is to take effect. For example, if you would like your company to be recognized as an S-corp in the year 2021, you would have to have filed by March 15, 2021, or anytime during the year of 2020. You can file your election at any time throughout the year, but if it’s after two months and 15 days into the year, your election would take effect the following year.
LLC Running an LLC is not as complicated as running a corporation. You can file your company taxes along with your personal income taxes. LLC’s provide limited liability protection of your assets just like a corporation without all the paperwork and record-keeping. Income passes through the business and to the business owners who then report their income on their personal income taxes.