Two things in life are certain: death and taxes. One is mostly out of your control, but you can exercise some leeway over your taxes.
When it comes to deciding whether or not to become a C-Corp, knowing the key factors can aid you in making the right decision. Defined as a corporation under the United States tax law that is taxed separately from you, the owner, a C-Corp might be a solid choice for your business.
The difference between a c-corp and an s-corp
The difference is simple. As a C-Corp, your business is taxed separately from you, the owner. As an S-Corp, your business is not taxed directly. Instead, the shareholders of your business are taxed. Becoming an S-Corp requires qualification, whereas becoming a C-Corp is something any company can do regardless of the number of shareholders.
Liability of shareholders
As a C-Corp, your shareholders are not liable for the debts accumulated through your business. Unless you discover criminal and/or fraudulent activity going on within your corporation, your shareholders are not responsible for any of its actions. Additionally, incorporating as a C-Corp allows your business to maintain as many or as few shareholders, both domestic and international, as you please. There are no limits.
Tax deductions and benefits
Taxes are certain. All businesses are required to report and pay taxes with full disclosure. However, as a C-Corp, your company will enjoy the maximum amount of tax deductions. With so many tax deductions available to C-Corps, overall tax liability is typically lower than for any other type of corporation.
Dividends and earnings
One of the biggest benefits of becoming a C-Corp is the ability to do what you want with your net profit. Once taxed, net profits can go one of two ways. You can distribute them among your shareholders as dividends or keep them in the business as retained earnings.
Making the decision
When it comes to making the decision to incorporate, the right choice could be crucial for the success of your business. For this reason, it becomes imperative that you find a trusted resource to educate you on the facts and figures. You can rely on the information provided to you by your state, the IRS, or even your accountant.
Starting a business is about more than just choosing a profession or a trade. It’s crucial that you have the facts and educate yourself, because your business’s financial future can affect your personal finances as well as those of your shareholders.
Originally posted on July 29, 2013 @ 4:32 pm