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How are different entities taxed?

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C Corporations are taxed at the corporate level and then when the shareholders receive dividends they are taxed as well.  S Corporations do not pay taxes, only the shareholders do (whether they receive the income in cash or not).  LLCs are generally taxed as a partnership meaning that all income and losses pass through to the owners pro rata and in the same character. LLCs can choose by filing an Entity Classification Election (Form 8832) to be taxed as a C Corporation or S Corporation.  Care in making such an election requires the help of a competent tax planner!  The taxation of a Trust can occur in various ways depending on how it is structured.  Some trusts are taxed – fully or partially – at the trust level (which is very expensive).  Other trusts (or the same trust at different times) can avoid tax by distributing assets to the beneficiaries (who then must pay the tax).

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