Don’t Overlook the Value of Filing as a C-Corporation

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Let’s go back to Corporate Taxation 101.

We were all taught that C-Corporations for small businesses were bad. They were taxable entities and to add insult to injury, if a shareholder took a dividend, they were taxed again on their personal tax return.

As a consequence, we were taught to form most companies using the S-Corporation tax election. S-Corporations are flow-through entities, whereby the corporation wasn’t taxed and the profits or losses flowed through to the shareholder to be claimed on their personal returns. Simple enough.

But in this article, I am here to change your mind about C-Corporations.

In an S-Corporation, a company faces different challenges. Reasonable compensation is one example. The fact is that a shareholder with more than 2 percent stock ownership cannot have employee benefits. And when the money passes through, depending on the nature of the shareholder’s tax situation, they can pay upwards of 39.6 percent in taxes. The point is, I know that as professionals we tend to give blanket answers. I used to be that way, but now I look at the situation as a whole.

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About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.


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By ruthmcg
Dec 15th 2017 15:46

Did I read that the new law causes employee benefits like gym memberships and education reimbursement to be taxable to the employee?

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