What is the primary benefit of an S Corporation compared to a C Corporation?

The primary benefit of an S Corporation compared to a C Corporation is the ability to pass income directly to owners without incurring corporate taxes. This structure allows business profits and losses to be passed through directly to the shareholders' individual tax returns, thereby avoiding the double taxation commonly associated with C Corporations. In C Corporations, income is taxed at the corporate level, and when profits are distributed to shareholders as dividends, those amounts are taxed again at the individual level.

This passthrough taxation model makes S Corporations attractive for many small business owners, as it can lead to tax savings and simpler tax reporting. By choosing S Corporation status, businesses are often able to treat earnings more favorably from a tax perspective, while still retaining the benefits of limited liability protection for the owners.