Similarities and Differences
When starting a business or changing your business structure, one of the most common options business owners evaluate is whether to form an S corporation (S corp) or C corporation (C corp). These are the two most common ways to incorporate, and the choice really depends on your business goals.
The C corporation is the standard corporation, while the S corporation has elected a special tax status with the IRS. It gets its name because it is defined in Subchapter S of the Internal Revenue Code. To elect S corporation status when forming a corporation, Form 2553 must be filed with the IRS and all S corporation guidelines met. But C corporations and S corporations share many qualities:
Despite their many similarities, S corporations and C corporations also have distinct differences.
To become an S corporation, you must file Form 2553 with the IRS. The IRS instructions—which can be a bit tough to follow—require that an election is considered effective in the current tax year only if the Form 2553 is completed and filed:
Generally, an election made after the 15th day of the 3rd month but before the end of the tax year is effective for the next tax year (unless you can show
Keep in mind that some states also require you to file a state-level S corporation election after incorporating your business.
As you decide which business structure is best for you, try our Incorporation Wizard to compare multiple business types by multiple key considerations.
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