A C corporation's profits are taxed separately from its owners under subchapter C of the Internal Revenue Code. A C corporation may be a good idea especially if you file an LLC and treat it as a C corporation. In an S corporation, the profits are passed on to the shareholders, and are taxed based on personal returns. An "S" corporation (also referred to as an S corp) is create at the state and then through an IRS tax election. An S domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Only the shareholders are taxed as opposed to both the shareholders and the corporation itself. An "S" corporation is a state created corporate entity. It has its own birth certificate ( an Corporation certificate ) and its own Social Security Number ( a Federal Tax ID EIN ). Thus, it is a separate person. A legal person as opposed to a natural person because it has papers but no physical body. It is separate from you so you are not liable for its wrongs and taxes. As an Corporation owner, you are called a corporate shareholder who might also manage the Corporation as a president, secretary, treasurer or all three plus being the sole director. Another designated person could manage it. If you are going to make any serious money such as more than $50,000 per year, you may want to form an LLC or coproration. It is the best to help you save on taxes and protect you from personal liability.

If you file as a sole proprietor, you will be liable for all business debts and liabilities. For example, you have a cleaning business and your employee steals from your clients, you will be liable personally. If you form a Corporation, and the same thing happens, your personal assets, such as your home and car are protected. If sued, they can only get what the Corporation has. If only $1,000 in the bank, that is all the plaintiff gets.

Even though they will tell you that Delaware or Nevada is the best state, the best state is actually the state you do business in. This simplifies the entire business.