When registering a company, C corporation is the most common corporation type.
It is a separate legal entity set up under state law that protects owner (shareholder) assets from creditor claims. Incorporating your business automatically makes you a regular, or “C” corporation.
A C corporation (or C corp) is a separate taxpayer, with income and expenses taxed to the corporation and not owners. If corporate profits are then distributed to owners as dividends, owners must pay personal income tax on the distribution, creating “double taxation” (profits are taxed first at the corporate level and again at the personal level as dividends). Incorporating your business automatically makes you a regular, or “C” corporation. Starting a C corporation may also offer greater tax advantages because of an expanded ability to deduct employee benefits, which are most often used by growing businesses but because of this tax feature it isn’t always the top choice for small business owners.
Why to choose starting a C corporation, let us describe for you with there advantages:
Owners are not typically responsible for business debts and liabilities
- Ownership is easily transferable through the sale of stock.
- C corps can have an unlimited number of shareholders.
- Business expenses may be tax-deductible.
- When a C corporation’s owner incurs a disabling illness or dies, the corporation does not cease to exist.
- Salaries paid to owners of C Corporations, though taxable to them as salary, are deducted from C Corp profits for income tax purposes.
- A C Corp could successfully retain earnings for reasonable business needs, if it complies with the accumulated earnings tax provisions, instead of distributing them to shareholders.
- In contrast to pass-through entities like LLCs, earnings of a C Corporation are not automatically taxed to the owners. They are taxed to owners if distributed as dividends. The C Corp pays tax on its income at C Corp tax rates.
- Additional capital can be raised by selling shares of stock.
- C Corps may be perceived as a more professional/legitimate entity than a sole proprietorship or general partnership.
- Generally C corporations are audited less frequently than sole proprietorships.
- A C corporation can offer self-employment tax savings, since owners who work for the business are classified as employees.
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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