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S Corporation vs. Corporation - Essay Example
Finance & Accounting
Pages 3 (753 words)
S CORPORATION VS CORPORATION Name Institution Affiliation Date In business there are different types of companies that one can form. These are majorly classed depending on certain characteristics. One of these classes is a corporation. A corporation is a business entity that is autonomously recognized by the law and that has been incorporated…
Incorporating as either of these provides shareholders with a number of tax and non tax advantages, which are gained by any company that is incorporated in either of these categories. Focusing on the tax issue, there is the fact that corporations are able in certain situations to help one in reducing their tax obligations. In states where the corporate tax is lower than individual income tax, one can incorporate thereby paying the lower corporate tax. Being a corporation allows the corporation to write down losses that may result from start ups, thereby reducing the tax burden that they have to meet. Corporations are also able to avoid tax by retaining income earned. This will limit the tax burden of the shareholders as well as the corporation. Though there are regulations in place that set a limit to the amount that can be retained without accruing taxation. The flipside that may exist as far as taxation of corporations goes is that of the double taxation effect. This is where the corporation gets to pay tax on its profit. The profit after tax that is then paid to shareholders as dividends is also taxed as income tax. This may be remedied if the corporation is recognized as an S corporation. The advantage of S corporations comes from the single taxation of the corporation’s income. ...
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