Business Tax Questions
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Below is a description of types of business entities.
A corporation, also called a C-Corporation, is an association of individuals, created by law or under authority of law, having a continuous existence independent of it membership. this type of organization will have its own organiztional by-laws. An individual can purchase stock in a corporation and receive dividends from the earnings. Corporations will be paying their own tax liability and the shareholders will only pay tax on the dividents they receive.
S corporation is similar to a C corporation in its organization. This type of corporation elects to pass corporate income, losses, deductions and credits to the share holders. This type of corporation must receive permission from the Internal Revenue Service to become a corporation allowing for profits and losses to flow through to the shareholders. The following requirements must be met: be a domestic corporation, must not have more than 100 shareholders, must include only eligible shareholders, and must have only one class of stock. Shareholders report the income or loss on their individual return from an 1120S K-1 issued by the corporation.
Limited Liability Company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of a company that provides limited liability to its owners in the vast majority of United States jurisdictions. A Limited Liability Company although a business entity, is a type of an unincorporated assoiciation and is not a corporation. The primary characteristic a Limited Liability Company shares with a corporation is to have limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through profits or losses to its memebers. It is often more flexible than a corporation, and it is well-suited for companies with a single owner.
Partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. Each partner includes his or her share of the partnership’s income or loss on his or her tax return.