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. The S Corporation's special tax status eliminates the possibility of the double taxation that occurs with a standard corporation. The standard corporation pays a federal corporation income tax on its profits. Double taxation then occurs if the corporation distributes profits in the form of dividends to the shareholders, because the shareholder must then report the dividend as personal income and pay taxes on it.