LYCOS RETRIEVER 
S Corporation: Dividends
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S corporations have a definite tax advantage over limited liability companies [“LLC”]. Distributions from LLCs to shareholders are subject to self-employment tax [15.2 percent] in their entirety. Distributions from S corporations... can be broken down into two categories, salaries and dividends. The dividend distributions are not subject to the self-employment tax. Avoiding self-employment tax can make a substantial difference in the amount of money you take home.
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Those taxes might be all the taxes the C corporation pays. However, if the C corporation distributes the “net of taxes” profits (roughly $130,000) to shareholders, those shareholders pay another individual income tax on the dividends. Currently, the dividend tax equals 15% at the federal level and, typically, a smaller amount (say 5%) at the state level.
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In a C corporation, all income, deductions, gains, and losses of the corporation are accumulated at the corporate level. The C corporation must then pay federal income tax on the C corporation's net income and gains, leaving an amount referred to as "net income after taxes". If the C corporation makes dividend distributions to its shareholders, each shareholder must report the amount of dividends received on his or her individual tax return, and such dividend income will be taxed once more at the shareholder level. Since the net income and gains of the C corporation are reduced by taxes at both at the corporate level and at the shareholder level, C corporations are subjected to what is commonly referred to as "double taxation".
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