Owning a business is no simple challenge, but figuring out the proper way to classify your business can be even more difficult. One of the biggest distinctions between corporations is C Corporation and S Corporation. Before you begin operating your business, it is important that you understand the difference between these two categories and what this means for your corporation tax ID number.
The question of C Corp vs. S Corp does not need to be complicated to understand. Businesses falling under C Corporation have a group of shareholders who each have some ownership and limited liability to the amount invested in the company. This kind of business is taxed twice, which included corporate profits and individual dividends. The multi-pronged ownership makes it more difficult for these kinds of businesses to be audited while making it easier to reinvest in the business. S Corp businesses, on the other hand, have a single owner. These kinds of businesses are not taxed, instead having aspects of the business added onto the sole owner’s personal tax filing. All things considered, S Corp greatly simplifies corporate accounting procedures. If you are not sure which kind of business is best for your new start-up, the information found on irs-ein-tax-id.com/ can help you understand the advantages and disadvantages of each.
The Corporation C vs. S question is a common one in the world of business and IRS EIN Tax ID Filing Service can help. Our resources make the difference between a federal tax ID number and an S Corp tax ID number clear, as well as many other complicated government concepts. Our system guides business owners through the processes with step-by-step instructions and precise explanations. Plus, we offer customer support 24 hours a day and seven days a week, so it is simple to get a detailed explanation for anything you do not understand.
Choosing the right classification for your business is an important decision, as it will affect you in the short and long term. The first decision you’ll have to make is whether to classify yourself as a corporation or Limited Liability Company (LLC). Then, if you choose to be a corporation, you will have to weigh the benefits between filing as a C-corporation versus S-corporation. Which is best for you? Read on.
This is a stand-alone business assigned to an EIN for a C-corporation and is structured around a group of shareholders, each with a degree of ownership and limited in their liability to the amount they invested in it. This company faces double taxation, however, including on corporate profits and on each individual dividend paid. This kind of ownership is perfect for businesses that want to have flexibility in paying dividends to owners or investing that money back into the company, as well as the ability to raise venture capital. It also offers tax benefits and protections for offering health insurance and stock options to employees and accounting for travel and business expenses. Finally, it makes it easier to sell the business and limits the likelihood of IRS audit because of the multi-pronged ownership design.
This type of corporate status is desirable when there is a single owner who does not want to be taxed at the corporate level. Instead, an EIN for an S-corporation is assigned and a corporate tax return is required, but businesses expenses and profits are incorporated into that person’s personal income-tax filing. This is the right filing for those wanting flexibility in setting wages to minimize Social Security and Medicare taxes, and allows for simpler accounting procedures. It also reduces the chance of an IRS audit.
In the end, it’s best to consult a tax attorney who is knowledgeable in setting up a new business.