If you do not make an election with the Internal Revenue Service (FORM 2553) or with the appropriate State Agency, you will be considered to be a C-Corporation. A C-Corporation will be subject to double taxation. It will be taxed one time at the corporate level and one time when distributions or dividends are given to shareholders. For example, assume a corporation earns $100,000 for the first year. The corporation must pay taxes at its own tax rate. Assume the corporation distributes the $100,000 to the sole shareholder of the company. This shareholder will have to pay taxes on this dividend as well; therefore there is double taxation.
If you prepare and file Form 2553, you will be an S-Corporation. An S-Corporation is subject to single taxation and the profits earned by the S-Corporation are taxable to the shareholders according to the individual income tax brackets and their ownership interest in the company. In other words, a 100% shareholder will report the full gain on his/ her individual income tax returns. If you are 50% shareholder and the corporation earns $100,000 for the first year, that 50% will report only $50,000 as income earned for this year.
A limited liability company is taxed similarly to an S-Corporation in that there is only single taxation. The difference is that, generally, an LLC files a partnership tax return whereas an S-Corporation must file a corporate tax return. To determine which entity to form consult with an attorney or accountant. 123EZCorp is simply a document preparation service.