C Corporations – Advantages and Disadvantages

Corporations have been used by people for generations to limit the liability of owners, allowing them to invest more in their business and to take greater risks. The very reason why people still continue to do this up to this date.

You will be hearing about the two kinds of corporations which is the C and S Corporations. Both corporations have charters that have been granted to them by the state of organization. While most people would want to go for S Corporations, a lot are eager to appreciate all the advantages of a C Corporation. They will surely be of great use to your entity.

C and S refers to the IRS Code Sections. C Corporations experience double taxation meaning one tax for the company level and another on the profits that are distributed to the shareholders. This double tax is what drives most people away and consider S Corporations that only feature one tax level. But the S Corporations however, have restrictions on ownership unlike the C Corporations which contain none.

Tax Advantage: Expenses and Deductions.

A C Corporation enjoys the benefit of having the widest range of expenses of deduction granted by the IRS. A C Corporation can easily set up various employee benefits such as medical reimbursements and etc., and be able to subtract the running costs of these programs, premiums and all. The owner or shareholder along with your employees will not be paying taxes on the value of the said benefits.

These kinds of benefits won’t be enjoyed by flow through entities such as the S Corporation. In the case of these kinds of entities, they may be able to deduct the costs of the said benefits, but if an employee or a shareholder owns over 2% of the company will have to pay taxes based on the value of the benefits being received. So if you wish to have employee benefits that are tax free as well as enjoy a maximum amount of deductions then a C Corporation is possibly the entity for you. Be sure to click here for more info!

Tax Disadvantage: Issue of Double Taxation.

The glaring disadvantage of the C Corporation is the issue of double taxation. Double taxation occurs when the C Corporation has extra profit left at the end of the year and aims to distribute it among the share holders as dividend. The C Corporation already paid the taxes on that said profit, but in the event that the profit is to be distributed to the shareholders as dividend, the share holders will have to pay taxes again based on their personal rates as they will have to declare that dividend as income. Be sure to find out more here!

Various companies such as Corporate Direct can help you decide what type of corporation works best for you.If you want to learn more about what type of corporation is best for you, you can find more info here. Check out this website at https://www.britannica.com/topic/logistics-business and know more about business.