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g to prepare in advance, you should set up a framework for analysis in an excel spreadsheet to compare the tax effect of the different business entity types: c corporation, partnership, and s corporation. ultimately you should expect the owners to ask for your recommendation on choice of a business entity and the tax effects of the formation, operations, and distributions.

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Choosing between the different business entity options is one of the most common questions entrepreneurs face. In this article, Total Finance Expert Scott Hoover lays out a useful guide to help entrepreneurs think through the menu of options they face.

What is S corporation?

A closely held corporation (or, in some situations, an LLC or a partnership) that makes a lawful election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code is known as a S corporation for purposes of US federal income tax. S corporations typically don't pay any income taxes. Instead, the firm divides its profits and losses among its owners and passes those along to them. The income or loss must subsequently be disclosed by the shareholders on their individual income tax forms. For the purpose of federal taxation, S corporations are regular business entities that choose to pass through corporate income, losses, deductions, and credits to their shareholders.

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