People have made use of corporations for decades already, to be able to encourage investments and to take bigger risks. This reasons stands very strong up to this date.
You will be hearing about the two kinds of corporations which is the C and S Corporations. The state of organization has granted these two kinds of corporations with charters. While most people would want to go for S Corporations, a lot are eager to appreciate all the advantages of a C Corporation. They certainly will benefit your entity.
C and S refers to the IRS Code Sections. C Corporations experience double taxation meaning one tax for the company level and another on the profits that are distributed to the shareholders. This double taxation sounds off-putting to a lot of people and they would rather go for S Corporations that feature only a single level of tax. But S Corporations have restrictions on ownership unlike the C Corporations
Tax Advantage: A Wide Variety of Deductions and Expenses.
A C Corporation’s biggest benefit is that the IRS allows for the widest range of expenses and deductions. C Corporations are able to set up various employee benefits and subtract the costs of running,(with all of the premiums paid) such programs. The value of the benefits are not taxed so your employees as well as you the owner or shareholder won’t be worrying about that aswell.
However S Corporations are not able to enjoy these kinds of benefits. 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. So if you wish to have employee benefits that are tax free as well as enjoy a maximum amount of deductions then a C Corporation is possibly the entity for you.
Tax Disadvantage: Issue of Double Taxation.
Double taxation is the most often mention disadvantage of the C Corporation. Double taxation occurs when C-Corps plans to distribute extra profit left by the end of the year among its shareholders as dividend. The entity has already paid the taxes on the profit, but once the profit is to be distributed as dividend among the shareholders they will have to declare it as income, meaning they will be paying taxes again on their personal tax returns based on their personal rates.
Various companies such as Corporate Direct can help you decide what type of corporation works best for you.If you want to learn more about what type of corporation is best for you, you can find more info here.