Tax Entity Characteristics

Applied to C Corporations, S Corporations, and Partnerships

Must file an election to determine tax status.

S Corporation

Tax on entity’s income paid at the entity level.

C Corporation

At-risk basis includes entity debt guaranteed by owner.

Partnership

Distributions to owners are treated as taxable dividends.

C Corporation

At-risk basis includes money stockholder lends to the entity.

S Corporation

Distributions to owners are taxable if they exceed tax basis of ownership interest.

Partnership

Qualified employee fringe benefits are not excluded from owners’ gross income for employees owning > 2% of the stock.

S Corporation

Distributions to owners are taxable if they exceed tax basis of stock.

S Corporation

Qualified employee fringe benefits are excluded from owners’ gross income regardless of ownership percentage.

C Corporation

The DRD and preferential tax rates mitigate double taxation of owners.

C Corporation

Flow-through ordinary income to owners may be subject to SE tax.

Partnership

Flow-through ordinary income to owners may be made without regard to percentage of ownership.

Partnership

Flow-through ordinary income to owners is not subject to SE tax.

S Corporation

Flow-through of income and loss to owners must be made in proportion to percentage of ownership.

S Corporation

Must use a calendar year end unless a business purpose is established for a fiscal year end.

S Corporation

Owners are not employees for purposes of payroll taxes on compensation for services and fringe benefits.

Partnership

There are limitations on the number and types of owners.

S Corporation

Owner’s tax basis includes owner’s share of entity debt.

Partnership

Qualified business income deduction does not apply.

C Corporation

No requirements on number or types of owners.

C Corporation