PEDRO LUIS MARRUGO VILLADIEGO- 0501910035

PAG 28
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1. The incomesummaryaccount
2. Donthave to paydoubletaxation
3. Them
4. Shareholders
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1. An S corporation, or S corp, is a typeofcorporation that
meetsspecificInternalRevenueCoderequirements. The S corporationis
more appealing to small-businessownersthan a C corporationdue to the
taxbenefitsitoffers, particularly the avoidanceofdoubletaxation.
Unlike C corporations, S corporations do notpayincometaxes at the
corporatelevel. Instead, the income, losses, deductions, and credits are
passedthrough to the shareholders, whoreporttheseitemsontheir
personal taxreturns. Thisavoids the doubletaxationfacedby C
corporations.

2. S corporations do notpay federal incometaxes at the corporatelevel.

Instead, the income, losses, deductions, and creditsofan S corporation
"passthrough" to the shareholders. Eachshareholderreportstheir share of
the corporation'sincome or lossontheir individual taxreturn.
Shareholdersmustincludetheseamounts in their personal
incomeregardlessofwhether the incomeisdistributed.

3. S corporations can onlyissueoneclassof stock. Thismeansthey are limited

to havingjustonetypeof stock, although that stock
mayhavedifferentvotingrightsattached to it. Thisrestrictionis in contrast to
C corporations, which can havemultipleclassesof stock withvaryingrights
and preferences.

4. Pass-ThroughTaxation: S corporationsavoid the

issueofdoubletaxationfacedby C corporations. They do notpay federal
incometaxes at the corporatelevel. Instead, income, deductions, and
credits are passedthrough to the shareholders, whoreportthemontheir
individual taxreturns.
LimitedLiabilityProtection:Shareholdersof S
corporationshavelimitedliability, protectingtheir personal assetsfrom the
debts and liabilitiesof the company.
TaxSavingsonSelf-EmploymentTaxes: Shareholder-employeesof S
corporations can saveonself-employmenttaxes. They are
onlytaxedontheirwages, noton the entireprofitsof the corporation.
PAG 29
1. A C corporation, as contrastedwithan S corporationbasedon the
textprovided, is a typeofcorporation in the UnitedStates that
isautomaticallycreatedwhen a smallbusinessincorporates.
Thiskindofcorporationisalsoknown as a regular corporation. The C
corporationisconsidered a separate legal entity, whichmeansitisviewed
as an individual taxpayerby the InternalRevenueService (IRS).

C corporations are subject to doubletaxation, meaning that the

corporation'sprofits are taxed at the corporatelevelfirst. Whentheseprofits are
distributed to shareholders as dividends, they are taxedagain at the individual
level. Unlike S corporations, C corporations do nothaverestrictionsonownership
and can issuemultipleclassesof stock, offering more flexibility for
businessgrowth, expandingownership, or selling the corporation.

2. C corporationspaytaxesthrough a processknown as doubletaxation.

Thisinvolvestwomainsteps:
First, the corporationitselfpaystaxesonitsprofits at the corporatetaxrate.
The InternalRevenueService (IRS) treats the corporation as a separate
legal entity, so itmust file a corporatetaxreturnand
paytaxesonitstaxableincome. Thisis the firstleveloftaxation.
After the corporation has paidtaxesonitsprofits, anyremainingprofits can
be distributed to shareholders as dividends. Thesedividends are
thensubject to individual incometax at the shareholderlevel.
Shareholdersmustreport the dividendstheyreceiveontheir personal
taxreturns and paytaxesonthisincomeaccording to their individual
taxrates. Thisis the secondleveloftaxation.

3. C corporations can havemultipleclassesof stock. Thisallowsthem to

issuedifferenttypesof shares that mayhavevaryingrights, privileges, and
restrictions. For example, a C corporationmightissuecommon stock and
preferred stock, wherecommonstockholdersmighthavevotingrights and
the potential for dividends,
whilepreferredstockholdersmightreceivefixeddividends and
havepriorityovercommonstockholders in the eventofliquidation.
Thisflexibility in issuingmultipleclassesof stock can be advantageous for
structuring the ownership and financialstrategyof the corporation.