A C corporation generally pays its own federal income tax. An S corporation generally passes tax items through to shareholders. This difference matters when owners expect to retain profits, distribute cash, bring in investors, or sell the business.

Keeping earnings in a C corporation does not mean the money can later be withdrawn without tax consequences. Salary, dividends, loans, and liquidation distributions require separate analysis. Conversely, S corporation shareholders can owe tax on allocated income even when the business keeps the cash.

An entity comparison should include compliance costs, payroll, owner eligibility, state treatment, and a realistic exit scenario. A projection using actual expected profits is more useful than choosing the structure with the most attractive headline tax rate.

Your next steps

• Estimate business and owner-level taxes together.
• Model both retained earnings and cash distributions.
• Review ownership eligibility and long-term goals.

General education, not individualized tax or legal advice. Illustrations use stated assumptions and do not promise a refund or tax saving.