What are the differences in taxation of operating income between the three?
C corporations are taxed on operating income at the corporate level, which can climb up to the maximum federal rate of 35 percent, and the lower capital gains tax rate does not apply for corporations. Capital losses are allowed up to the level of capital gains and can be carried forward five years or backward three years. In S corporations and partnerships, all income is passed through and reported and taxed at the shareholder or partner level. Capital gains and losses are taxed at the shareholder’s or partner’s capital gain rates and subject only to the limitations at the shareholder or partner level. What is the difference in how business losses are treated? If you think that the business will be generating losses, at least for a while, it’s important to consider how they will be treated for tax purposes. For C corporations, losses may only be carried over at the corporate level. While S corporations pass losses through to the shareholders to the extent of stock basis, plus basis in
