Lesson 4 of 11
C corporation taxation vs S corporation taxation
For a corporation, the election changes whether the company is taxed on its own profit.
C corporation
The corporation pays corporate income tax, and shareholders pay again on dividends. Profit retained and reinvested avoids the second layer, which suits companies building rather than distributing.
S corporation
Profit passes through to shareholders whether or not it is distributed. That means owners can face tax on income they have not received in cash if the company retains it.
Non-tax considerations
Venture investors generally cannot hold S corporation stock, and the single class of stock rule blocks preferred shares. Companies planning institutional funding usually stay C corporations.
Not sure whether the election fits?
The numbers depend on your profit, your role in the business and your state. Gullia Filing's tax team reviews your position, prepares Form 2553 where it makes sense, and sets up payroll so the election holds up.