Easy Questions  
Free Legal Documents

Pros and Cons of Taxation as a Corporation in Alberta, AL

Pros and Cons of Taxation as a Corporation in Alberta, AL


Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.
 
- Steve Jobs


A corporation is the only type of business that pays taxes on profits. It is taxed differently from other business structures. Sole proprietorships, partnerships, and limited liability companies (LLCs) are pass through entities that report their business income profits or loss on the personal income tax returns of the owners and are not taxed on business profits like the corporation.

A corporation, as a separate tax entity from the owners, is taxed on all the profits after deducting the business expenses. The money that is kept in the company to cover expenses or expansions (retained earnings) and the profits distributed to the shareholders (dividends) are considered taxable profits.

Tax Deductible Expenses

A corporation can deduct from the taxable profits, its business expenses which is the money that the corporation spend in the legitimate pursuit of the business. The corporation can also deduct from the taxable profits all the salaries and bonuses it pays its employees (including the owners) and also the cost related to medical and retirement plans. Start-up costs, operating expenses, cost of goods sold and product advertising expenditures are also deductible expenses.

Corporate Tax Payments

IRS Form 1120 will be filed by the corporation when paying the corporate income taxes on any profits earned by the corporation. Quarterly payments can be done during the months of April, June, September, and January.

Shareholder Tax Payments

If the owner of the corporation works within the corporation, they are required to pay their own individual income taxes just like regular employees. The salaries and bonuses are considered deductible business expenses so the corporation does not pay taxes on them.

Tax on Dividends

Dividends that the corporation distributes to their shareholders are not tax deductible so they will be reported and paid on their personal income tax aside. And, the corporation is also required to pay the tax on the earnings that fund this dividend. This means the dividends are taxed twice. In smaller corporations, the owners work for the corporation as employees. The corporation pays them in the form of salaries and bonuses which are tax-deductible, thus saving them from taxable dividends. Debt payments are tax deductible, so they are a more tax advantaged source of capital.

S Corporation Taxes

S corporation refers to a corporation that elected to pay taxes like that of a partnership or limited liability company. The corporate profit or losses of the business are passed through to the owners and reported on their own personal income tax returns, similar to LLCs.

Benefits of a Separate Corporate Income Tax

With double taxation and the extra time and effort in filing both corporate and personal taxes, it begs the question why anyone would choose the corporate structure. There are benefits that can be derived out of having a separate level of taxation. This is a complicated area and the benefits may vary depending on the individual situation.

• Manage to a lower tax rate. Owners can split profit and loss with the business for a lower overall tax rate. By managing how much of the corporations' earning are paid out in dividends to the owners, vs. kept on the corporate books as retained earnings, owners can optimize their combined tax rates. The corporate income tax rate of 15 to 25 percent on profits up to $75,000 is lower than most owners' marginal tax rates on the same amount. This is the reason why it would save money by keeping profits within the company.There is a limitation, however, with the amount of money that can be kept in the corporation which can only amount up to $250,000 without tax penalties.

• Fringe Benefits. Another advantage of forming a corporation where tax benefit is concerned is that the company can deduct the full cost of fringe benefits given to the employees; including the owners and they are not taxed on these benefits.

• Raising capital. Corporations can go public and sell stock. For that reason, venture capital companies prefer to work with corporations rather than with LLCs. S corporations, like LLCs, don't suffer from double taxation. C corporations may face double taxation, but they can have incentive stock option plans.

 
Personalize & Print a Free AL Last Will Download this Document
Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
Page 8
Page 9
Page 10
 
Personalize & Print a Free AL Living Will Download this Document
Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
Page 8
Related Legal Services near Alberta, AL
Smith Deborah W
102 N Cotton St
Andalusia, AL 36420
(334) 222-9299
Attorneys
Meredith Woods Markham
1608 3rd Ave N
Bessemer, AL 35020
(205) 902-9227
Family Law Attorneys, Attorneys
Sylvester Rod
205 Church St
Andalusia, AL 36420
(334) 222-9199
Attorneys
Sylvester Rod
7 E Court Sq
Andalusia, AL 36420
(334) 222-9191
Attorneys
Lanier Grady
206 S Three Notch St
Andalusia, AL 36420
(334) 222-9189
Attorneys, Legal Service Plans
Woodard Allen G
1213 E Three Notch St
Andalusia, AL 36420
(334) 222-9115
Attorneys, General Practice Attorneys
Bogan Adrienne W
1600 5th Ave N
Bessemer, AL 35020
(205) 424-8875
Attorneys,  Business Bankruptcy Law Attorneys,  General Practice Attorneys,  Bankruptcy Law Attorney
Law Center The For Civil And Criminal Justice
1600 5th Ave N
Bessemer, AL 35020
(205) 424-8875
Attorneys, General Practice Attorneys
Johnson Earl V Atty
29 S Court Sq
Andalusia, AL 36420
(334) 222-8443
Accident & Property Damage Attorneys, Attorneys, Legal Service Plans
Armstrong Ralph L
1818 3rd Ave N
Bessemer, AL 35020
(205) 424-8255
Criminal Law Attorneys, Attorneys
Corey D. Bryan, LC
119 E Three Notch St
Andalusia, AL 36420
(334) 222-8220
Legal Service Plans, General Practice Attorneys, Attorneys
Enzor Leland
208 Dunson St
Andalusia, AL 36420
(334) 222-8177
General Practice Attorneys, Attorneys
Hardy, Clifford W Jr PC
1600 3rd Ave N
Bessemer, AL 35020
(205) 428-7348
Attorneys, Legal Service Plans
Bush Willis W
25 S Court Sq
Andalusia, AL 36420
(334) 222-7193
Attorneys, Legal Service Plans
S Scott Allums PC
506 18th St N
Bessemer, AL 35020
(205) 426-7080
Attorneys,  Personal Injury Law Attorneys,  Wills, Trusts & Estate Planning Attorneys,  Divorce Att
Tumlin Edward D
1821 3rd Ave N
Bessemer, AL 35020
(205) 424-6868
Attorneys, Legal Service Plans
Mc Clelland Richard
1821 3rd Ave N
Bessemer, AL 35020
(205) 277-6780
Attorneys
Short, Pete
300 18th St N
Bessemer, AL 35020
(205) 425-6509
General Practice Attorneys,  Attorneys,  Family Law Attorneys,  Legal Service Plans
Foster T Kenneth
300 18th St N
Bessemer, AL 35020
(205) 425-6509
Attorneys, Criminal Law Attorneys, Legal Service Plans
Jewell, Billy C
1724 3rd Ave N
Bessemer, AL 35020
(205) 424-6300
Personal Injury Law Attorneys, Attorneys
Keyes, Jim
720 18th St N
Bessemer, AL 35020
(205) 428-5877
Attorneys
Ausman, Joe
720 18th St N
Bessemer, AL 35020
(205) 428-5877
Attorneys
Lipscomb And Lipscomb
210 18th St N
Bessemer, AL 35020
(205) 235-5712
Social Security & Disability Law Attorneys,  Attorneys,  Criminal Law Attorneys,  Family Law Attorne
Hall Don
1616 3rd Ave N
Bessemer, AL 35020
(205) 425-5711
Attorneys, Legal Service Plans
12Law.com   |  NASHVILLE, TN USA   |  CONTACT US