Double taxation

Double Taxation occurs when income is taxed at both the corporate level and again at the personal level when distributed as dividends. LLCs avoid this by default thanks to pass-through taxation. However, C-Corporations are subject to double taxation, which is why many small business owners prefer LLCs or S-Corporations. Understanding double taxation is crucial when deciding between forming an LLC or incorporating. It highlights one of the key financial advantages of the LLC structure.