S-Corp or C-Corp? A Quick Guide to the Difference

Most small business owners end up with an S-corp, often without ever comparing it to the alternative. For most profitable, owner-run businesses, that's actually the right call — but it's worth knowing why, and when it isn't.

Why S-corp is usually the better fit

If you're self-employed, you pay 15.3% self-employment tax on all your profit. With an S-corp, you pay yourself a reasonable salary (which gets payroll tax) and take the rest as a distribution, which skips that tax entirely. On $300,000 of profit with a $110,000 salary, that split can save somewhere around $15,000-$20,000 a year.

When C-corp makes more sense

A C-corp fits better in a few situations: if you plan to raise money from outside investors (S-corps can't have more than 100 shareholders, and all must be individuals or certain trusts), if you want your stock to qualify for the QSBS tax exclusion, or if you're reinvesting most of your profit back into the business rather than taking it out. C-corp profit is taxed at a flat 21%, and it isn't taxed again until it's actually paid out as a dividend.

The trade-off

The catch with C-corps is double taxation — profit is taxed once at the company level, then again when it's distributed to you. That makes C-corp more expensive if you take most of the profit out every year. It only pays off if you're keeping a good chunk of it in the business.

The bottom line

The right structure depends on your numbers — how much you distribute, how much you reinvest, and where the business is headed. If it's been a while since anyone compared your current setup to the alternative, it's worth a quick look.

Share your numbers with Bottala Tax & Advisory at info@bottalacpa.com and we'll show you what the comparison looks like for your business.