C-Corporation
The C-corporation is a separate taxable entity. It must pay a separate corporate “tax” on its earnings. Typically owners withdraw money from the corporation in the form of a salary or a dividend.

Tax Consequences: A C-Corporation is the heaviest taxed of all corporate structures. Tax rates can be as high as 51%. Profits are taxed once at the corporate rate and again when dividends are distributed to shareholders.

In Plain English: We would recommend the C-Corporation if you intend to seek investors, hire employees, offer benefits to employees and if you plan to pay yourself a salary from the start. You will need to pay someone to handle your payroll filings or you will have to do it yourself.

S-Corporation
In researching the various business structures, one inevitably comes across the S Corporation.  S corps and LLCs are similar in that they are both “pass-through” entities for tax purposes; the income of these companies are passed through to their owners and reported on the owners’ personal income tax returns, thereby eliminating the double taxation incurred by owners of a standard corporation, or C corporation.  Therefore, if you are looking to save on employment tax, an S corporation could work for you.

Tax Consequences: The S Corporation is the lowest taxed of all the corporate structures. Profits are passed to the individual and can be as low as 28%.

In Plain English: We would recommend the S Corporation if you plan on running a small business with very few employees (if any). Also, an S-Corporation is a good option if you wish to “defer” paying yourself a salary until your business is big enough for you to afford it. As a result, you will pay less at tax time, since you won’t be paying any employment taxes on your earnings. Most of our clients prefer the flexibility of an S Corporation.

Corporate LLC
The owner of an LLC is considered self-employed and as such, must pay a “self-employment tax” of 15.3% which goes towards social security and Medicare. The entire net income of the business is subject to self-employment tax.

Tax Consequences: The income earned by a LLCs is taxed approximately 45%.

In Plain English: We recommend a LLC if you plan on operating as a small business with very few (if any) employees and you prefer to pay towards your Social Security and Medicare accounts. With an LLC you won’t need to worry about paying someone to handle your payroll filing, since your earnings will automatically be taxed an additional 15.3% to cover your Employment Taxes. The good thing about an LLC is that you will automatically be paying into your Social Security and Medicare account from the day you begin your business.