C corporation - No restrictions as to owners or type of businesses. In addition, certain corporations, such as certain financial institutions, insurance companies, and domestic international sales corporations, are ineligible to be S corporations.Must make an election on Form 2553 with the consent of all the shareholders before the 16th day of the third month of the taxable year.An LLC is like an S corporation in that it is not a separately taxable entity for most federal and state income tax purposes.If an LLC has only one member it is generally taxed like a sole proprietorship.Operating through an entity can also facilitate changes in ownership and investments by others.While there are numerous non-tax factors to consider when choosing which form of entity to use, there are also many tax considerations.C corporation - Two levels of tax - at entity and shareholder levels.
An individual who operates a business as a sole proprietorship without forming an entity will be directly taxable on the business income and gain, and may, subject to certain limitations, be able to offset other income and gain with the loss and deduction from the business.The individual reports the sole proprietorship’s income, gain, loss and deduction on his or her federal and state tax returns.Two or more individuals who operate a business without forming an entity will nevertheless be taxed as a partnership.Unlike a C corporation, an S corporation is not a separate taxable entity for most federal and state income tax purposes.The S corporation’s owners (shareholders) pay tax on a proportionate share of the income and gain realized by the company (whether or not it is distributed to them) and may, subject to certain limitations, use the entity’s losses to offset other income. Not every corporation, however, is eligible to be an S corporation.For example, Massachusetts imposes an entity-level tax on large S corporations. Default tax status for a single member LLC is a disregarded entity; default tax status for a multi-member LLC is a partnership. S corporation status is available only for certain types of businesses and owners.