Easy Questions  
Free Legal Documents

Pros and Cons of Taxation as a Corporation in Charlotte, IA

Pros and Cons of Taxation as a Corporation in Charlotte, IA


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 IA 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 IA 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 Charlotte, IA
Bauerly Craig R Atty
1312 Turnberry Ave
le Mars, IA 51031
(712) 546-9293
Attorneys
Richardson Ryan A
1288 Lincoln St SW
Le Mars, IA 51031
(712) 546-8873
General Practice Attorneys, Attorneys
Trotzig & Bauerly, P.L.C.
1288 Lincoln St SW
Le Mars, IA 51031
(712) 546-8873
General Practice Attorneys, Attorneys
Murphy Patrick N
38 1st Ave NW
Le Mars, IA 51031
(712) 546-8844
Attorneys
Murphy Collins & Bixenman PLC
38 1st Ave NW
Le Mars, IA 51031
(712) 546-8844
Personal Injury Law Attorneys, Attorneys
Bixenman Scott L
38 1st Ave NW
Le Mars, IA 51031
(712) 546-8844
Attorneys
Mitchell Gregory C
15 1st Ave NW
le Mars, IA 51031
(712) 546-8105
Attorneys
Murphy Michael P Res
542 15th St SW
Le Mars, IA 51031
(712) 546-7884
Attorneys, Legal Service Plans
Robert B Brock
16 2nd St SE
le Mars, IA 51031
(712) 546-7861
General Practice Attorneys, Attorneys
The Commodity Office of Le Mars
24 1st St NW
le Mars, IA 51031
(712) 546-7851
Attorneys
Starcevic Joseph F
13 S Clinton St
Albia, IA 52531
(641) 932-7802
Real Estate Attorneys, Attorneys, Legal Service Plans
Hemmingson Mark
104 Central Ave NE
Le Mars, IA 51031
(712) 546-7677
Attorneys, Legal Service Plans
Hoffman Thomas J Atty
801 3rd St SE
le Mars, IA 51031
(712) 546-7234
Attorneys
Lubben Earl
640 Remer Dr SE
Le Mars, IA 51031
(712) 546-7194
Attorneys
Bybee Jim
14 1st Ave SW
Le Mars, IA 51031
(712) 546-6999
Attorneys, General Practice Attorneys
Hall Hudson Attys PC
4039 Main St
Elk Horn, IA 51531
(712) 764-6062
Attorneys, General Practice Attorneys, Legal Service Plans
Lubben Rcpm
127 3rd Ave NW
Le Mars, IA 51031
(712) 546-5454
Attorneys
Devries Mark W
104 Market St
Bellevue, IA 52031
(563) 872-5429
General Practice Attorneys, Attorneys
Rasmussen Joe
4216 Main St
Elk Horn, IA 51531
(712) 764-5357
Attorneys, General Practice Attorneys, Legal Service Plans
Pabst John A
212 Benton Ave W
Albia, IA 52531
(641) 932-5155
General Practice Attorneys, Attorneys
Olson Alan
567 Southview Dr SE
Le Mars, IA 51031
(712) 546-4833
Attorneys
Hueneke Richard
39033 361st Ave
Bellevue, IA 52031
(563) 872-4735
Attorneys
George James L
17 1st Ave NE
Le Mars, IA 51031
(712) 546-4704
Attorneys, Legal Service Plans
Besch Ronald J
124 S Riverview St
Bellevue, IA 52031
(563) 872-4558
Attorneys, General Practice Attorneys
12Law.com   |  NASHVILLE, TN USA   |  CONTACT US