Tax Benefits of A 'C' Corporation - Funding
Legal Article GuideBy: Richard Chapo
If you are going to form a corporation, you might be surprised to learn a “C” corporation comes with a lot of tax benefits. While this article isn’t intended to replace the advice of a good tax professional, it may serve to open your eyes to the value of a “C” corporation.
“C” Corporation
The “C” in C corporation has a few legal ramifications, but it is primary a designation for tax purposes. Put in layman’s terms, the designation simply means the corporation will act as its own tax entity. In contrast, an “S” corporation acts as a pass through tax entity, pushing its financials down to the shareholder who report the information on their personal tax returns.
The Internet Revenue Code sets out the law on tax and it contains a few juicy provisions for corporations. Lets take a look at one of the advantages.
Incorporating
When a party transfers something of value to another party, the IRS gets interested. It views the receipt of something of value as a taxable event. In simply terms, if you pay me for forming a corporation, I have to report and pay taxes on the money. Since a C Corporation is a stand alone tax entity, what happens when you purchase stock?
You have made arrangements to form a “C” corporation. Now you have to buy stock in it to become a shareholder. If you exchange money or property for the shares, the IRS takes the position no taxable event occurred. In essence, this means the corporation will not have to report you contribution as part of its revenues. If the money isn’t considered a part of the corporate revenues, no tax must be paid on it.
The exact rules for funding a corporation are a bit more complex. With any tax issue, you can expect there to be roughly fifty exceptions and qualifiers. For instance, if you were to exchange services instead of money for the stock, the above example would not apply. Make sure you speak with a tax professional to handle your particular situation correctly.
In Closing
Many people choose a business entity without considering all relevant aspects. Taxes definitely constitute one of these aspects. Make sure you look into them prior to making your decision.
Richard Chapo is with http://www.sandiegobusinesslawfirm.com - providing legal services to San Diego businesses.
Bookmark & Share Articles:
Related Articles:
Leave a comment to Tax Benefits of A 'C' Corporation - Funding
No Responses to Tax Benefits of A 'C' Corporation - Funding
(From 0 Votes)
RSS Legal Guide Feed
Latest 5 Legal Guide
Mediation and Mediators: Some Common
Article by: Tammy Lenski, Ed.D
A few years ago, a national conflict resolution association conducted...
SSI and Social Security Disability:
Article by: Jerry Lutkenhaus
Social Security Disability (sometimes called SSDI) and SSI are confused...
Electronic Discovery – Why Aren't
Article by: David S
As the technology age creeps upon us and forces us...
Class Action Lawsuits Defined
Article by: Margaret Wommack
A class action is a civil lawsuit filed by multiple...
Florida DUI And License Restriction
Article by: Josh Riverside
DUI implies driving under the Influence and DWI means driving...