Question

How does the owner compute her basis in a C corp. when she contributes cash, property and services to the corporation?

What about in an S corp?

Please explain I am so confused...

Answer 1

C corp and S corp are the company structures chosen by a business depending on their ideal business tax structure. S-Corps are considered “pass-through” entities, where the business’s profits and losses are reported on the business owner’s income. C-Corps are taxed both at the corporate level, and on the owners’ personal income tax returns, if corporate income is distributed to the corporation’s shareholders as dividends. C corp is default type of corporation . S corp is elect by filing IRS Form 2553. A C-corporation is the standard, most common type of corporation. Shareholders who have purchased stock in a company own the corporation, and these shareholders enjoy limited liability protection.The owners of a corporation can elect to structure the business as an S-corporation. S-corporations are also called sub chapter S corporations, after the section of the tax code that regulates these types of businesses. Taxation causes a big difference between S corp and C corp among other differences. Many companies choose their business structure as S corp to reduce tax and save money from taxation. C-corps are subject to “double taxation.” First, the C-corp is taxed at the corporate level when the owners file a corporate income tax return (Form 1120). A C-corp can then be taxed again, on the owners’ personal income tax returns, if corporate income is distributed to the corporation’s shareholders as dividends. An S-corp is a pass-through entity for tax purposes, which means that shareholders report their share of the business’ income and losses on their personal tax return. Owners only have to pay taxes once at their personal income tax rate—they aren’t subject to a corporate tax. As a shareholder of a S-corp, your business’s income is taxed on your personal income when you file Form 1120 S. The owners of the S corp can deduct 20% of their qualified business income from their personal tax return. C-corporations have no restrictions on ownership. You can have an unlimited number of shareholders, as well as different classes of shareholders. S-corporations can have only up to one hundred shareholders.