What difference between C corporations and S corporations is correct?

What difference between C corporations and S corporations is correct?

• A. C corps are taxed at corporate level and again at shareholder level (double taxation); S corps are pass-through entities with ownership restrictions.
• B. C corps and S corps are taxed identically.
• C. C corps have no liability protection; S corps do.
• D. S corps are owned by unions.

Answer: (A)

Tax treatment and ownership rules differentiate C corporations from S corporations. C corporations face double taxation: profits are taxed at the corporate level, and dividends are taxed again to shareholders at the personal level. S corporations avoid this by passing profits and losses through to shareholders, so the entity itself isn’t taxed at the corporate level and shareholders report the income on their personal returns. In addition, S corporations have ownership restrictions: they can have up to 100 shareholders, all must be individuals (or certain qualified entities), they must be U.S. residents or citizens, and they can issue only one class of stock. This combination—double taxation for C corps and pass-through taxation with ownership limits for S corps—best describes the difference. The other statements contradict how taxation or ownership works for these entities.

Tax treatment and ownership rules differentiate C corporations from S corporations. C corporations face double taxation: profits are taxed at the corporate level, and dividends are taxed again to shareholders at the personal level. S corporations avoid this by passing profits and losses through to shareholders, so the entity itself isn’t taxed at the corporate level and shareholders report the income on their personal returns. In addition, S corporations have ownership restrictions: they can have up to 100 shareholders, all must be individuals (or certain qualified entities), they must be U.S. residents or citizens, and they can issue only one class of stock. This combination—double taxation for C corps and pass-through taxation with ownership limits for S corps—best describes the difference. The other statements contradict how taxation or ownership works for these entities.