For entrepreneurs who are thinking of incorporating their small businesses, the different requirements for starting different corporations can be tricky to navigate. Each type of corporation comes with different tax regulations – thereby different forms must be filed annually. The Internal Revenue Service says there are at least 250 returns that must be filed for corporations that have assets of $10 million or more.
Luckily, the IRS helps make the process of business formation simpler by offering some straightforward information for entrepreneurs on taxes affecting different business types.
For C Corporations, entrepreneurs’ firms will be accountable for income tax, estimated tax, excise tax and employment taxes.
S Corporation and Limitled Liablility Companies, on the other hand, benefit from pass-through taxation. This means that the owners of the firm pay a tax on the firm’s income, as opposed to a tax levied on the firm itself. Additionally, S corporation shareholders are also liable for income taxes and estimated taxes.
Still, the IRS warns potential LLC owners that different states have different requirements that entrepreneurs should consider before deciding on a business type.
Entrepreneurs can check the IRS website or seek a professional incorporation service to learn more about the process of business formation and determine which type of company best fits their needs.