S Corp, C Corp: A World of Difference

A few points to add to the discussion in "Room to Grow" (Aug./Sept. 2007): Health-insurance premiums paid by an S corporation for an employee owning more than 2% of the stock may be considered taxable compensation to the employee.

S corporations must file on a calendar year. C corporations may use another fiscal year, which is a tool that can be utilized to postpone paying taxes. Also, because S corp losses are passed through to the stockholders' individual tax returns, losses incurred by a startup S corp can be used to offset other income and in some cases recoup income taxes paid in prior years. Finally, although the LLC itself is not a taxable entity, LLC owners are generally taxed personally on the net profit of the company, regardless of whether any cash distributions are made.

Gary Abeles, CPA

Tipping Point Technologies

Verona, N.J.

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