Читать книгу Run Your Own Corporation - Garrett Sutton - Страница 44

Unlike the S corporation, a C corporation is taxed as its own taxpayer, separate from the shareholder owners. Just as an individual’s tax return is determined by figuring income, credits, losses and deductions, a C corporation’s taxes are figured the same way. The C corporation pays a tax on income. If any money is later distributed to the shareholders they will pay an income tax on those distributions individually. Double taxation is a disadvantage of the C corporation.

Another disadvantage for some is that losses for the business are held at the corporate level in a C corporation. While the business can use the losses to offset later profits, unlike an S corporation the losses do not flow through to the individual shareholder. For businesses that may incur losses during their startup and for the first few years, the S corporation will flow through the losses to the shareholders. The C corporation will not. The losses are trapped, if you will, in the entity. A C corporation can be a disadvantage this way, but maybe not. It depends on your strategy and situation.

Two factors minimize the C corporation’s double taxation and the losses held at corporate level. First, a C corporation’s first $50,000 income is subject to only a 15 percent tax. This may allow the corporation to keep more money inside the company for expansion. Second, if most income the C corporation receives will be payable as salary to the shareholder-employees, the corporation can deduct the salaries and pay a lower tax on its income. But if the shareholders take excess profit as dividends, those funds are taxed to the shareholders as income which, again, involves paying a double tax on the same dollar of income. So, it is important to work with your tax advisors on which way is best for you.