How do an S Corporation and an LLC compare in terms of taxation?

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An S Corporation and an LLC both share a significant advantage in taxation: neither is subject to double taxation, which is a situation where a corporation's income is taxed at both the corporate level and again at the individual level when dividends are distributed to shareholders. Instead, both S Corporations and LLCs are typically considered pass-through entities for tax purposes. This means that the income generated by these entities is passed through directly to the owners and reported on their personal tax returns, avoiding the corporate tax layer.

This characteristic allows owners to only pay taxes at their individual rates, simplifying the tax process and minimizing the overall tax burden. It's important to note that while both S Corporations and LLCs have this pass-through taxation feature, their structures and the way they operate can differ significantly in other aspects, such as ownership limitations and formal requirements.

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