Although both S corp and C corp are types of corporations, they differ in a number of respects, including how taxes are treated. While a S company is a pass-through entity in which the revenues and losses are passed on to the shareholders and recorded on their personal tax returns, a C corporation is taxed separately from its owners.
C corporations are subject to double taxation, which means they must pay taxes on their income as well as any dividends paid to shareholders. S corporations, on the other hand, avoid double taxation because the shareholders’ personal tax returns only have to report the earnings and losses once.
No, by default, an LLC is not a C company. An LLC is a separate legal organization from its owners, but by submitting Form 8832 to the IRS, it can elect to be taxed as a C corporation. Although the majority of LLCs chose pass-through taxation, they can also elect to be taxed as S corporations by submitting Form 2553.
An LLC should specify its federal tax classification on a W9 form. A solo proprietorship, partnership, C corporation, S corporation, trust/estate, or disregarded entity are among the alternatives. The LLC must provide its EIN and state that it is a S corporation if that is the tax classification it chose. How Can I Find Out What Federal Tax Class I Fall Under?
You can examine your tax records or speak with a tax expert to discover the federal tax status of your LLC. If you haven’t decided on a tax classification for your LLC, you can do so by filing Forms 8832 or 2553 with the IRS.
In conclusion, accurate tax planning and compliance depend on your ability to differentiate between S corp and C corp and identify your LLC’s federal tax status. As always, it’s advised to seek advice from a tax expert to make sure you’re making the best choices possible for your company.