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Maryland S Corporation vs. C Corporation: Taxation

www.reichertlegal.comWhen considering whether to establish your Maryland business as an S corporation or C corporation, something you, your tax advisor and attorney should consider are the tax implications. Maryland corporate law does not make a distinction between S corps and C corps for purposes of corporate law, however the Federal tax distinction is significant. The reason most clients choose S corps over C corps is based on their desire to avoid the double taxation of profit that is imposed upon C corps. What happens is the company is viewed as a separate entity such that the company is taxed on net income and then when payment of dividends are made to stockholders, the stockholders are also taxed on the amount of that dividend resulting in double taxation under the C corp structure.

By establishing a Maryland S corporation—which requires the filing of Form 2553 with the IRS—the company can generally avoid this double taxation. The profits of the company will pass directly to the shareholders in a similar way as to a partnership and thus have one tax instead of two. To be clear, the S corporation is still viewed as a separate legal entity and provides the liability protection similar to that of a C corporation.

For a free, confidential conversation to discuss S corps and C corps, and other Maryland business formation laws and considerations, contact Maryland business attorney Stephen J. Reichert at 410-299-4959, or by clicking here.

Day, evening and weekend appointments are available in office or at your residence. Mr. Reichert personally serves clients in Baltimore, Baltimore County, Anne Arundel County, Howard County, Carroll County, Harford County, Frederick County, Montgomery County and throughout most of Maryland.