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What is the difference between an S corporation and a C corporation?

Business, especially small businesses, should consider whether to incorporate as C versus S corporations. Businesses file with the state of incorporation, for example Montana or Washington, but they must meet federal IRS standards. The most important difference between C and S corporations is tax treatment. C corporations are double-taxed, paying once at the entity level and once on shareholder dividend income. S corporations, however, are taxed only once at the shareholder level because all income, losses, deductions, and credits pass through to the shareholders. Avoiding double taxation is a huge benefit, especially for small businesses. 

In return for the tax benefit, however, S corporations must meet formation requirements that are stricter than those for C corporations. In general, S corporation requirements promote small businesses by limiting the type, kind, and number of eligible shareholders. Our experienced business attorneys will help you determine which type of corporate status offers works best for your goals.

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