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S corp and C corp, how to differentiate?

Asked by: raj  — 26 November, 2011

Respected sir,
I am an international F1 student, Through lots of contacts to immigration lawers and government of USA including USCIS and homeland security of USA, they said I can open or own a business or corporation In USA and take profits from it paying proper taxes but you cannot take paychecks and pay tax from any company including your own.
Question is as you have told me last time, that you can own a corporation but not S corporation , can i register an incorporation or is that S corporation or how to know is that c corporation while registering a business? And one more question is:
Can I include my name as director or that means i work for that business while registering a corporation…i need your help to differentiate between c corporation or s corporation?

Answered by: admin  — 26 November, 2011

Dear Raj,

First of all, all corporations, when registered, are considered by the IRS and the state authorities to be C-Corporation for taxation purposes. The shareholders of the corporation can choose to elect it to be taxed as S-Corporation from day 1 of its existence (its done retroactively in that case) if they deem it the best course of action and if the Corporation qualifies for S-Corp status.

If the corporation is owned by at least one shareholder who is not a US person then this corporation cannot be elected to be taxed as S-Corporation, such as in your case.

The primary difference between S-Corp and C-Corp is in the fact that C-Corp has what is called “double-taxation”. That means C-Corp will first be taxed on a corporate level at the corporate tax rate, and then what is left post-tax can be distributed to the shareholders, who pay their personal tax on that dividend. Thus its double-taxation.

On the other hand S-Corporation is the type of entity generally referred to a “pass-through entity”, meaning it is not taxed on the company level, but instead passes it profit and loss to the shareholders, who pay their personal tax on that income.

S-Corporation is not the only pass-through entity. LLC is also a pass-through entity and is very popular with international entrepreneurs starting a business in the US.

As to your question about being a director of a corporation – since you are not allowed to be personally compensated for any work, you could probably just serve as a director without any pay.

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