This article summarizes some of these differences in three broad categories: • Initial Considerations• Operational Considerations• Exit Considerations Other business entities include limited partnerships, business trusts and specialized entities such as real estate investment trusts (REITS) and real estate mortgage investment conduits (REMICS). As a general rule, C corporations are taxed twice on business income; once when earned by the corporation and again when that income is distributed as a dividend to the shareholders.Income and gains earned by flow-through entities, like S corporations and LLCs, are generally taxed only once - to the owners when earned.If it has more than one member it is generally taxed under the rules applicable to partnerships.
An LLC is like an S corporation in that it is not a separately taxable entity for most federal and state income tax purposes.If an LLC has only one member it is generally taxed like a sole proprietorship.Tax advantages may be available by using a fiscal year, i.e.a taxable year that differs from the calendar year.For example, for tax purposes, corporations may be classified as C corporations or S corporations.
C corporations are separate taxable entities for federal and state income tax purposes.
As with S corporations, the owners are not taxed when the previously taxed income and gain is later distributed.
While overall income tax burden on a business is an important factor, there are other important non-tax differences between C corporations, S corporations and LLCs.
The individual reports the sole proprietorship’s income, gain, loss and deduction on his or her federal and state tax returns.
Two or more individuals who operate a business without forming an entity will nevertheless be taxed as a partnership.
Only one class of stock is allowed, but differences in voting rights are permitted. However, foreign and tax-exempt investors may be reluctant to be members of an LLC due to concerns about U. effectively connected income (ECI) and unrelated business taxable income (UBTI).