​New entrepreneurs can start out on the right foot by making sure they understand the tax responsibilities of running a business. The process can seem daunting, but IRS.gov has resources to help new business owners.

Here are a few things new entrepreneurs need to do when starting their business.

Choose a business structure
The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:

• Sole proprietorship: An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
• Partnership: An unincorporated business with ownership shared between two or more people.
• Corporation: Also known as a C corporation. It's a separate entity owned by shareholders.
• S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
• Limited Liability Company: A business structure allowed by state statute.

Choose a tax year
A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

• Calendar year: 12 consecutive months beginning January 1 and ending December 31.
• Fiscal year: 12 consecutive months ending on the last day of any month except December.

Apply for an employer identification number
An EIN is also called a federal tax identification number. It's used to identify a business. Most businesses need one of these numbers. It's important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.

Have all employees complete these forms

• Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services
• Form W-4 Employee's Withholding Allowance Certificate

Pay business taxes
The form of business determines what taxes must be paid and how to pay them.

Visit state's website
Prospective business owners should visit their state's website for info about state requirements.

Many of the accounting entries are done behind the scenes in QuickBooks just by carrying out the day to day activities of your business. This week we cover 10- 20 great things about QuickBooks...

10. Keep Questions Organized - If you come across transactions that you are not sure how to handle don't let them stop you from reconciling and closing out your financials.  Use the QuickBooks ask my accountant code on your chart of accounts.  This will allow you to enter the transaction and reconcile all while keeping your questions organized in one spot. 

11. Journal Entries - Journal entries are sometimes necessary to fix issues or create year end entries per your CPA to match your tax return.  Although journal entries are getting more into the "accounting" end of things you should still be familiar with them. 

12. Accept Online Payments - You can turn on the Intuit payment network services which allows customers to pay your invoices easily online.  The best part is it only costs you $0.50 per transaction with no percentage of the invoice being charged as a fee.  So you could send a $50,000 invoice and only pay $0.50 to get that money sent directly to your checking account.  Hard to beat that price given the typical merchant processing fees.

13. Email Invoices and Statements - You should set up all invoices and statements to be emailed directly from QuickBooks.  This will help reduce the amount of time it takes for your customers to pay you, which will increase cash flow.  You can turn on the online payments as discussed in #12 above to help you get paid even faster.  

14. Payroll Management - You can process your payroll directly in QuickBooks or use an outsourced payroll service.  We typically recommend outsourcing your payroll to reduce your liability.  When you use an outsourced payroll it is important to record your outsourced payroll correctly in QuickBooks.  Many payroll companies even offer files that can import your outsourced payroll data into QuickBooks. 
 
15. QuickBooks Class Tracking - QuickBooks class tracking is one of the more powerful functions of the software that often is not utilized.  QuickBooks classes are a way to track your data in a way that is meaningful to your business.  Examples of QuickBooks classes are locations or departments.  I use QuickBooks classes to track sources of income so that I know the source of every penny that our business has ever made.    

16. Financial Reporting - One big mistake I see is small businesses not taking advantage of the reporting that is available in QuickBooks.  Small business financial reporting is a crucial piece of the bookkeeping process.  Without running and analyzing financial reports your bookkeeping system is not performing to its full capability. 

17. Owner Memorized Reports - I develop a custom set of reports for myself to run our business.  We also work with our clients to develop a set of reports that the owner finds particularly useful to run their business.  While many reports are available in QuickBooks it is nice to organize them all in one spot for easy access.  Under Reports/Memorized Reports you can find your memorized report list.  You should create a new list called 'owner reports' and memorize important reports to that list to make them easily accessible.

18. Custom Importing - If your financial institution does not offer import capabilities into QuickBooks you still have some options.  You can use a CSV converter to QuickBooks to make your data importable into QuickBooks.  Additionally you can create Intuit Importable Files also known as IIF files which import into QuickBooks.  You may need to seek a developer or programmer that can create IIF files.   

19. Web Apps - There are a whole lot of apps that work with QuickBooks that may help your business.  It is worth browsing the apps to see how they can help your business.  Be sure to get an app that is approved and supported by Intuit.  One QuickBooks app that we recently started using is Time Tracker by eBillity.  This app allows our employees to track and enter their time from their computer, mobile phone or tablet.  The administrator can then approve the time, which can then be set up to sync with your QuickBooks file. 

20. QuickBooks as a Tool - Lastly, I want to talk about using QuickBooks as a tool to run your small business.  Many small business owners look at bookkeeping as a hassle or as a means to filing their taxes.  I think some small business owners simply don't like bookkeeping, others are intimidated by it and some don't see the value in it.  If your bookkeeping system and QuickBooks file are set up properly and tailored to your specific needs they can help you run your business.  Your QuickBooks file should be a tool that you can use to aid you in making key business decisions.

QuickBooks can be a valuable tool to help you run your small business.  If you look at your bookkeeping as a hassle then you have not been shown how to properly use your bookkeeping system to aid you in making business decisions.  

Many of the accounting entries are done behind the scenes in QuickBooks just by carrying out the day to day activities of your business. Over the next 2 weeks, we cover 20 great things about QuickBooks...

1. Control Cash Flow - QuickBooks can be a great tool to help you manage your cash flow.  Instead of using your online bank balance you should keep your QuickBooks file updated regularly and understand how to use it to manage your cash flow.  By entering your financial transactions often and doing daily reconciliations in QuickBooks you will get a great handle on your cash flow.  The key is sorting your QuickBooks bank accounts by cleared status. 

2. Invoice Customers - I always like to train clients to create and send their own invoices in QuickBooks.  When you have a customer that wants to give you money for products or services that last thing you want to do is wait on sending them an invoice.  Learning how to properly invoice customers will decrease your accounts receivable and increase your cash flow.

3. Manage Bills and Accounts Payable - Keeping your vendors and suppliers happy is important as well.  You don't want to fall behind on your outstanding bills with vendors.  Using the enter bills and pay bills functions in QuickBooks is simple.  Entering the bills to your vendors with the correct terms and due dates will help you stay on top of keeping your vendors paid and happy.  Paying your bills directly through QuickBooks via online bill pay or printing checks will reduce unnecessary data entry and increase productivity. 

4. Manage Employee Time - You can enter employee time from the employees section of the home screen.  You can enter a single time event or use a weekly timesheet.  Tracking time in QuickBooks can help measure employee productivity and can prove to be valuable for job costing purposes.  

5. Customized Chart of Accounts - Your QuickBooks chart of accounts is all about your needs and should be customized to those specific needs.  I often see clients make their chart of accounts so complicated that the reports become meaningless.  Make sure your chart of accounts speaks to you and provides you with valuable information that you can use.  Don't worry too much about tailoring your chart of accounts to your taxes; it should be more geared towards helping you run your business. 

6. Memorized Transactions - You should use QuickBooks memorized transactions to automatically enter transactions that occur on a regular and predictable basis.  This can include invoices, bills, journal entries and payments.  The idea is to boost efficiency and have certain items be entered automatically into QuickBooks.  One example of a good use of a memorized transaction is a bill that you have set up to be automatically deducted from your checking account like your mortgage payment.  By memorizing a check you can have the payment automatically post to your checking account a certain number of days in advance.   
 
7. Always Reconciled - The most important thing you can do for your small business bookkeeping system is to make sure to reconcile QuickBooks on a consistent basis.  You should reconcile all of your applicable accounts not just your bank accounts.  Make sure to reconcile bank accounts, credit cards, loans, lines of credit and payroll liabilities.   

8. Printing Checks - Printing checks from QuickBooks is a great way to keep cash flow updated and increase your efficiency.  Since the check will not clear your bank until the payee deposits it you want to make sure to include it in your cash flow analysis.  Printing checks from QuickBooks will eliminate unnecessary data entry. 

9. Online Banking - You should set up your QuickBooks accounts for online banking download.  Many major financial institutions offer data downloads into QuickBooks.  This will reduce a lot of unnecessary data entry.

10-20 coming net week...

QuickBooks can be a valuable tool to help you run your small business.  If you look at your bookkeeping as a hassle then you have not been shown how to properly use your bookkeeping system to aid you in making business decisions.  

Taxpayers should be sure to have all their info before going to a tax pro
Taxpayers using a professional tax preparer should make sure they have all their information readily available before their appointment. Collecting their information and getting copies of any missing documents before taxpayers sit down to prepare their return is critical to filing an accurate tax return. Having organized records and information in hand helps prevent filing errors and will likely create a smoother filing experience.

Here’s a list of information taxpayers may need. Not all information applies to all taxpayers.

• Social Security numbers of everyone listed on the tax return.
• Bank account and routing numbers for direct deposit or information to make a tax payment.
• Forms W-2 from employer(s).
• Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan.
• Form 1099-K, 1099-MISC, W-2 or other income statement for workers in the gig economy.
• Form 1099-INT for interest received.
• Other income documents and records of virtual currency transactions.
• Form 1095-A, Health Insurance Marketplace Statement.
• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance child tax credit payments.
• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the recovery rebate credit.
• Information to support claiming other credits or deductions, such as receipts for child or dependent care, college expenses or donations.

Taxpayers can get information about their Economic Impact Payments and advance child tax credit payments through their IRS online account.
Taxpayers who don’t have their letters about their Economic Impact Payment to claim missing stimulus payments and advance child tax credit payments to claim their full child tax credit have an online option. They can log in to their IRS online account and get the information from the Tax Records tab.
For taxpayers who are married filing jointly, each spouse will need to have their own Economic Impact Payment and advance child tax credit information.

What taxpayers should do if they’re missing other documents
Taxpayers who didn’t receive a W-2 or Form 1099 should contact the employer, payer or issuing agency and request the missing documents. This also applies for those who received an incorrect W-2 or Form 1099.
If they still can't get the forms, they can use Form 4852, Substitute for Form W-2, Wage and Tax Statement or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. If a taxpayer doesn't receive the missing or corrected form in time to file their tax return, they can estimate the wages or payments made to them, as well as any taxes withheld. They can use Form 4852 to report this information on their federal tax return.

GLM has been working with business owners for many years. One of the biggest concerns most business have is: "Should I make them an employee or just in independent contractor?" This information is direct from the IRS:

A business might pay an independent contractor and an employee for the same or similar work, but there are key legal differences between the two. It is critical for business owners to correctly determine whether the people providing services are employees or independent contractors.
Here’s some information to help business owners avoid problems that can result from misclassifying workers.

An employee is generally considered anyone who performs services, if the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker's services are performed. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public.

Independent contractor vs. employee
Whether a worker is an independent contractor, or an employee depends on the relationship between the worker and the business. Generally, there are three categories to consider.

• Behavioral control − Does the company control or have the right to control what the worker does and how the worker does the job?
• Financial control − Does the business direct or control the financial and business aspects of the worker's job. Are the business aspects of the worker's job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.
• Relationship of the parties − Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? Will the relationship continue and is the work performed a key aspect of the business?

Misclassified worker
Misclassifying workers as independent contractors adversely affects employees because the employer's share of taxes is not paid, and the employee's share is not withheld. If a business misclassified an employee, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors generally must receive a determination of worker status from the IRS. Then they can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report their share of uncollected social security and Medicare taxes due on their compensation.

Voluntary Classification Settlement Program
The Voluntary Classification Settlement Program is an optional program that provides businesses with an opportunity to reclassify their workers as employees for future employment tax purposes. This program offers partial relief from federal employment taxes for eligible businesses who agree to prospectively treat their workers as employees. Businesses must meet certain eligibility requirements and apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS

Who is self-employed?
Generally, someone is self-employed if any of the following apply to them.

• They carry on a trade or business as a sole proprietor or an independent contractor.
• They are a member of a partnership that carries on a trade or business.
• They are otherwise in business for themselves, including a part-time business.

Self-employed individuals, including those who earn money from gig economy work, are generally required to file an tax return and make estimated quarterly tax payments. They also generally must pay self-employment tax which is social security and Medicare tax as well as income tax. These taxpayers may qualify for the home office deduction if they use part of a home for business

Direct from the IRS: Here’s what businesses need to know about the enhanced business meal deduction
The IRS encourages businesses to begin planning now to take advantage of tax benefits available to them when they file their 2022 federal income tax return. This includes the enhanced business meal deduction.
For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Otherwise, the limit is usually 50% of the cost of the meal.
To qualify for the enhanced deduction:

• The business owner or an employee of the business must be present when food or beverages are provided.
• Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
• Payment or billing for the food and beverages occurs after December 31, 2020, and before January 1, 2023.
• The expense cannot be lavish or extravagant.

Grocery stores, convenience stores and other businesses that mostly sell pre-packaged goods not for immediate consumption, do not qualify as restaurants. ¬
Employers may not treat certain employer-operated eating facilities as restaurants, even if they operate under contract by a third party.
Here’s what business owners need to know about certain costs:

• The cost of the meal can include taxes and tips.
• The cost of transportation to and from the meal isn’t part of the cost of a business meal.

Entertainment events
Business owners may be able to deduct the costs of meals and beverages provided during an entertainment event if either of these apply:

• the purchase of the food and beverages occurs separately from the entertainment
• the cost of the food and beverages is separate from the cost of the entertainment on one or more bills, invoices, or receipts.

Businesses should review the special recordkeeping rules that apply to business meals.

This year’s deadline to file and pay federal income taxes has passed for most people. If a taxpayer is due a refund, there is no penalty for filing late. However, those who owe and missed the deadline without requesting an extension should file quickly to limit penalties and interest.

Here are some tips for taxpayers handling some of the most common after-tax-day issues.

Check refund status
Taxpayers can check on their refund using the Where's My Refund? tool. It is available on IRS.gov and the IRS2Go app. To use this tool, taxpayers need their Social Security number or ITIN, tax filing status and the exact amount of the refund claimed on their tax return. The tool updates once daily, so there's no need to check more often. Taxpayers without access to a computer can call 800-829-1954.

Check withholding
All taxpayers are encouraged to check their withholding using the Tax Withholding Estimator on IRS.gov. This will help them make sure their employers are withholding the right amount of tax from their paychecks. Doing this now will help avoid an unexpected amount due and possibly a penalty when they prepare and file their taxes next year.
Taxpayers can use the results from the Estimator to help complete a new Form W-4 and adjust their income tax withholding with their employer. Taxpayers who receive pension income can use the results to complete a Form W-4P and submit to their payer.

Review payment options
Taxpayers who owe taxes can review all payment options online. These include:

• Paying their taxes owed or making a partial payment through their Online Account or with IRS Direct Pay
• Paying by debit card, credit card or digital wallet
• Applying online for a payment plan

​Carefully consider if they need to amend a tax return
After filing their tax return, taxpayers may find they made an error or forgot to enter something on it. The IRS strongly recommends taxpayers use the Interactive Tax Assistant, Should I File an Amended Return? to help determine if they should correct an error or make other changes to the tax return they already filed.

Common errors taxpayers should fix are those made about filing status, income, deductions, and credits. Taxpayers usually do not need to file an amended return to fix a math error or if they forgot to attach a form or schedule. Normally, the IRS will correct the math error and notify the taxpayer by mail. Similarly, the agency will send a letter requesting any missing forms or schedules.

Taxpayers expecting a refund should not file an amended return before their original return has been processed

The IRS issues most refunds in fewer than 21 days for taxpayers who filed electronically and chose direct deposit. However, some returns have errors or need more review and may take longer to process.

Things that can delay a refund:

• The return has errors, is incomplete or is affected by identity theft or fraud.
• The return needs a correction to the child tax credit or recovery rebate credit amount.
• The return has a claim filed for an earned income tax credit, additional child tax credit, or includes a Form 8379, Injured Spouse Allocation.
• The time it takes a taxpayer's bank or credit union to post the refund to the taxpayer's account.

The IRS will contact taxpayers by mail if it needs more information to process their return.

As we hit the deadline date for filing your taxes, ​​we needed to give you some reminders, directly from the IRS

WASHINGTON — The Internal Revenue Service is reminding taxpayers the deadline to file and pay tax owed for most individual income tax returns is today, Monday, April 18. The agency wants last-minute filers to know tax help is available to file a tax return, request an extension or make a payment, 24 hours a day on IRS.gov.

The IRS encourages taxpayers to file electronically because tax software does the calculations, flags common errors and reduces tax return errors by prompting taxpayers for missing information. The fastest way to receive a refund is to file electronically and use direct deposit.

IRS Free File is available to any person or family with an adjusted gross income (AGI) of $73,000 or less in 2021. Leading tax software providers make their online products available for free. Taxpayers can use IRS Free File to claim the remaining amount of their Child Tax Credit, the Earned Income Tax Credit and other important credits. IRS Free File Fillable Forms is available to anyone who is comfortable preparing their own tax return - so there is a free option for everyone.

Online Account provides information to help file an accurate return, including Advance Child Tax Credit and Economic Impact Payment amounts, Adjusted Gross Income amounts from last year’s tax return, estimated tax payment amounts and refunds applied as a credit.

Get a 6-month extension to file
The IRS estimates 15 million taxpayers will request an extension of time to file and the easiest way to request an extension to file is using IRS Free File. In a matter of minutes, anyone can request an extension until October 17, using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. An extension of time to file is not an extension of time to pay, however, and taxpayers must estimate their tax liability on this form and pay any amount due by the April 18 filing deadline to avoid penalties and interest.

Taxpayers can also request more time by paying all or part of their estimated income tax due and indicate that the payment is for an extension. They can do this using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a debit, credit card or digital wallet. This way they don’t have to file a separate extension form and will receive a confirmation number for their records.

IRS Form 4868 can also be downloaded from IRS.gov/forms, completed and addressed to the correct IRS office, and must be postmarked by the filing deadline.

Who automatically has more time to file?
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in areas covered by Federal Emergency Management Agency disaster declarations. Deadlines to file tax returns and make tax payments are extended for affected taxpayers in certain areas of Arkansas, Colorado, Kentucky and Tennessee until May 16, 2022, and for Puerto Rico until June 15, 2022. For details on all available relief, visit the Around the Nation page on IRS.gov.

Special rules may apply for some military personnel serving in a combat zone or a qualified hazardous duty area. This also applies to individuals serving in the combat zone in support of the U.S. Armed Forces. A complete list of designated combat zone localities can be found in Publication 3, Armed Forces’ Tax Guide, available on IRS.gov. U.S. citizens and resident aliens living outside the United States have until June 15, 2022, to file their 2021 tax returns and pay any tax due.

$1.5 billion in unclaimed 2018 refunds
The IRS estimates 1.5 million taxpayers did not file a 2018 tax return to claim tax refunds worth more than $1.5 billion. The three-year window of opportunity to claim a 2018 tax refund closes April 18, 2022, for most taxpayers. If they do not file a 2018 tax return by April 18, 2022, the money becomes the property of the U.S. Treasury. The law requires taxpayers to properly address, mail and ensure the 2018 tax return is postmarked by that date.

Other April 18 deadlines
April 18 is also the deadline to make 2021 contributions to Individual Retirement Arrangements (IRAs). Contributions can be made to a traditional or Roth IRA until the filing due date, April 18, but must be designated for 2021 to the financial institution. For more information, see Retirement Plans FAQs Regarding IRAs or Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).
Employment taxes are due April 18 for household employees including housekeepers, maids, babysitters, gardeners and others who work in or around a private residence as an employee if they were paid $2,300. For more information, see Publication 926, Household Employer's Tax Guide.

The deadline to submit 2021 tax returns or an extension to file and pay tax owed this year falls on April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia. Taxpayers in Maine or Massachusetts have until April 19, 2022, to file their returns due to the Patriots' Day holiday in those states.

The first quarter estimated tax payment for 2022 is also due on April 18. Taxpayers are encouraged to check their withholding for 2022 after they’ve filed their 2021 tax return. It can protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year. It can also help taxpayers adjust their tax withheld up front, so taxpayers receive a bigger paycheck and smaller refund at tax time.

Choose a business structure
The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.
Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.

Nonprofit corporation
Nonprofit corporations are organized to do charity, education, religious, literary, or scientific work. Because their work benefits the public, nonprofits can receive tax-exempt status, meaning they don't pay state or federal taxes income taxes on any profits it makes.
Nonprofit corporations need to follow organizational rules very similar to a regular C corp. They also need to follow special rules about what they do with any profits they earn. For example, they can't distribute profits to members or political campaigns.
Nonprofits are often called 501(c)(3) corporations — a reference to the section of the Internal Revenue Code that is most commonly used to grant tax-exempt status.

Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. ... B Corps form a community of leaders and drive a global movement of people using business as a force for good.

While B Corp claims that certification balances the interests of shareholders with the interests of workers, customers, communities and the environment, B Corp standards are not legally enforceable. ... Certification is initially self-assessed, and doesn't override the profit-driven focus of the company.
What is the difference between a benefit corporation and a B Corporation?

The B Corp Certification is a third-party certification administered by the non-profit B Lab, based in part on a company's verified performance on the B Impact Assessment. The benefit corporation is a legal structure for a business, like an LLC or a corporation.

To qualify for a one-year term as a Pending B Corp, your company must:

1. Meet the legal accountability requirement for B Corp Certification. ...
2. Complete and submit a prospective B Impact Assessment. ...
3. Sign the Pending B Corp Agreement and pay a one-time fee of $500.

A benefit corporation is formed just like a traditional for-profit corporation, by filing articles of incorporation with the appropriate state agency. However, benefit corporation articles of incorporation will include a statement of its social or environmental purpose.

Your business can apply for B Corp certification whether it's organized as a partnership, a limited liability company (LLC), or incorporated as a traditional C corporation. ... Startups can't earn B Corp status until they have been in business 12 months but they can apply for a certification-pending seal.
https://bcorporation.net/about-b-corps

The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.
Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.

This week we talk about Corporations

C corp
A corporation, sometimes called a C corp, is a legal entity that's separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable.
Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting.
Unlike sole proprietors, partnerships, and LLCs, corporations pay income tax on their profits. In some cases, corporate profits are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns.
Corporations can be a good choice for medium- or higher-risk businesses, businesses that need to raise money, and businesses that plan to "go public" or eventually be sold.
​
S corp
An S corporation, sometimes called an S corp, is a special type of corporation that's designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates.
S corps also have an independent life, just like C corps. If a shareholder leaves the company or sells his or her shares, the S corp can continue doing business relatively undisturbed.
S corps can be a good choice for a businesses that would otherwise be a C corp, but meet the criteria to file as an S corp.