a$.$ Explain the principal difference in the tax treatment of an S corporation and a C corporation.

b$.$ Why would a C corporation be used if an S corporation is generally exempt from$$ tax?

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Part $1$

a$.$ Explain the principal difference in the tax treatment of an S corporation and a C corporation.

A C Corporation is

taxed on its income

and for tax purposes is considered

a separate entity.

An S Corporation is

taxed on its income

$.$ Its income

flows through and is reported by the shareholders.

Each shareholder reports his or her share of the income

even if it is not

distributed.

Part $2$

b$.$ Why would a C corporation be used if an S corporation is generally exempt from$$ tax?

A$.$

Some corporations are ineligible for making an S corporation election. S corporations must also meet a series of$$ conditions, such as having taxable income not exceed$$ $$355,000.$ Others may choose the C corporation because the $2121\%$ corporate tax rate is less than the rate for the higher individual tax brackets$($e$.$g$.,3232\%,3535\%,$ and $3737\%).$

B$.$

All corporations are eligible for making an S corporation election. S corporations must also meet a series of$$ conditions, such as having no less than $50$ shareholders. Others may choose the C corporation because the $2121\%$ corporate tax rate is less than the rate for the higher individual tax brackets$($e$.$g$.,3232\%,3535\%,$ and $3737\%).$

C$.$

Some corporations are ineligible for making an S corporation election. S corporations must also meet a series of$$ conditions, such as having no more than $400$ shareholders. Others may choose the C corporation because of lower corporate tax rates.

D$.$

Some corporations are ineligible for making an S corporation election. Others may choose the C corporation because the $2121\%$ corporate tax rate is less than the rate for the higher individual tax brackets$($e$.$