Once you decide to form a corporation for your business entity, you will quickly be faced with another question. Should the corporation pay taxes as a “C” or “S” corporation?

There is a lot of confusion when it comes to the tax designation of a corporate entity. The first thing to understand is a corporation is a “C” designation by default. As a “C” entity, the corporation will file and pay its own taxes with profits and salaries being paid out to employees and shareholders. Since the employees and shareholders have to pay personal taxes on the distributions, “C” corporations are considered double taxation entities. This is generally viewed as a negative thing.

It goes without saying that the LLC is the media darling when it comes to choosing an entity for small businesses. In some cases, however, an LLC is at a disadvantage compared to an S Corporation.

Originating in the late 1970s in Wyoming, Limited Liability Companies have rise to loft heights. They are arguably the single most popular and most used entity for small business start ups. Why is this? Well, the LLC offers the tax advantages of a partnership along with the liability protection of a corporation. At the same time, the LLC does not require owners, known as members, to comply with the formalities of a corporation. In truth, said formalities are pretty simple, but there you are.