Corporations are considered a separate legal, taxable entity from the owners for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are then distributed to shareholders in the form of dividends, dividend income is taxed as regular income to the shareholders. By distributing corporate income in the form of dividends, the corporation does not receive the reasonable business expense deduction. The ownership of the corporation is easily transferable through the sale of stock.
Corporations have unlimited life extending beyond the illness or death of owners.
Tax benefits such as insurance, travel and qualified retirement plans are deductible. The possibility of double taxation. Corporations are more expensive to form and operate than sole proprietorships and partnerships. S Corporations An S Corporation is a standard corporation that has elected a special tax status with the Internal Revenue Service. S Corporations have the same limited liability protection of standard corporations.