Finding Similarities Between Tips and Life

9 months ago aebi Comments Off on Finding Similarities Between Tips and Life

Advantages and Disadvantages of C Corporations

People have made use of corporations for decades already, to be able to encourage investments and to take bigger risks. The very reason why people still continue to do this up to this date.

There are two types of corporations that you will frequently hear about, namely: the C Corporations and the S Corporations. Both corporations have charters that have been granted to them by the state of organization. C Corporations are the most common type of corporation a lot of people go after, we are highly enthusiastic about the advantages C Corporations have to offer. Your entity will surely will enjoy all the benefits.

C and S refers to the IRS Code Sections. C Corporations feature double taxation, this means that one tax on the company level, another on the profits that are being distributed by the shareholders. This double tax is what drives most people away and consider S Corporations that only feature one tax level. But S Corporations have restrictions on ownership unlike the C Corporations

Tax Advantage: Deductions and Expenses.

A C Corporation enjoys the widest range of expenses and deductions that are allowed by the IRS, most especially in the field of the employee fringe benefits. A C Corporation can easily set up various employee benefits such as medical reimbursements and etc., and be able to subtract the running costs of these programs, premiums and all. These said benefits won’t be taxed on the employees and you the owner or shareholder.

However, these benefits are not enjoyed by flow-through entities such as the S Corporation. In the case of these kinds of entities, they may be able to deduct the costs of the said benefits, but if an employee or a shareholder owns over 2% of the company will have to pay taxes based on the value of the benefits being received. If you want to have the maximum amount of deductions as well as value having tax free employee benefits a C Corporation might be the entity for you.

Tax Disadvantage: Double Taxation Scenarios.

The glaring disadvantage of the C Corporation is the issue of double taxation. Double taxation mainly occurs when a C Corporation has some profit left by the end of the year and plans to distribute the extra profit among the shareholders as dividend. The C Corporation has already paid all the taxes on that said profit, but once the extra profit gets distributed among the shareholders as dividend, they will have to declare the dividend as income, this means they will be paying taxes at their personal rates.

There are companies such as Corporate Direct that aims to help you decide what kind of corporation is best for you.If you want to learn more about what type of corporation is best for you, you can find more info here.

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