One of the disadvantages of the normal corporate form
- a C Corporation - is that
you may be subject to double taxation. The corporation
is considered a separate entity from its stockholders
and is taxed on its profits. When these profits
are distributed to the shareholders as dividends, they
are taxed again (on the personal level.)
avoid this double taxation by forming an LLC or by electing
to have your corporation treated as an S Corporation
(by filing Form 2553 within 75 days of first forming
the business or first transacting business.)
S Corporations are not taxed at the corporate level.
Income, loss, deductions and credits are passed through
to its shareholders who then compute their individual
LLCs can elect to be taxed as if they are a corporation
or a partnership. If the latter is chosen, no tax is
due on the entity level. Each partnership engaged
in a trade or business must file a return on Form 1065
showing its income, deductions, and other required information.
The return shows the names and addresses of each partner
(member) and each partner's distributive share of taxable
income and deductions. This is an information
return and must be signed by a member. If an LLC
is treated as a partnership, it must file Form 1065
and one of its members must sign the return. The
partnership does not pay any tax on its income but "passes
through" its profits or losses to its partners.
Partners must include partnership items such
as their distributive share of income and deductions
on their personal tax returns.