While registering a company, Most commonly the Companies adopt C corporation . Incorporation of a business makes company registered as corporations a C Corporation which is treated as a separate legal entity apart from its owner set up under the state law.
As per Separate Legal Entity concept, A C Corporation and its owners are taxed separately. Most major companies are treated as C Corps for US federal income tax purposes.
A C Corporationis a Corporate, liable to pay tax as per income tax persuading to the rules of subchapter C of the Internal Revenue Code in Form 1120 and is responsible for the same. If it pays dividends to shareholders from the remaining profits after paying corporate income taxes, it results in double taxation.
A C Corporation is a top choice for growing business owners as it provides greater tax benefits by expanded ability through deduction from employee benefits.
Why to choose starting a C corporation, let us describe for you with their advantages:
- The most attractive benefit is the separation of the owners from the business. It means that the owners are not typically responsible for business debts and liabilities.
- A C Corp has perpetual succession which means that bankruptcy insanity or death if the owner or a change in the membership of any member, the corporation continues to exist.
- Another edge that a C corp provides is that the Equity Shareholders are the owners of the company. However, it has to register with the SEC if it has assets worth $10 million and 500 or more shareholders.
- C Corp is viewed as a more professional entity than a sole proprietorship or a partnership.
- C Corp enjoys a greater credibility in the eyes of the bankers, suppliers and other vendors.
- Compared to sole proprietorship, C Corps are audited less frequently.
- The tax rates are lower than that of S Corps.
- The owners who work for the business are classified as employees. Therefore a C Corp can offr self-employment tax savings.
- Salaries paid to owners of C Corporations are deductable from the profits of the entity for income tax purposes.
- Equity shareholders are owners of the company, shares can be transferable easily.
- The expenses incurred in running the business may be tax deductible.
- If a C Corp complies with accumulated earning tax provisions, it can successfully retain earnings for business needs, after transferring to equity shareholders in the form of dividend.
- Unlike LLC’s, earnings of a C Corp are not automatically taxed to owners unless they are distributed to the owners as dividends.
C corporation tax rates have been significantly reduced under Trump Administration. A great opportunity lies ahead to plan your business the right way!
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