Corporation Setup

Benefits of a C-Corporation
  • A corporation is an entity separate from its owners/stockholders.  Many people incorporate to protect their personal assets.  
  • A corporation can own property.
  • A corporation is responsible for its own debts.  Shareholders, officers or directors are not liable for corporate obligations. 
  • Can use fiscal tax year instead of calendar tax year.

Disadvantages of C-Corporation
  • Most significant disadvantage is that of double taxation.  The corporation must pay taxes at corporate tax rate which is higher than personal tax rate.  The earnings are distributed to shareholders as dividends.  These dividends are included in the shareholders personal tax returns.         

Benefits of a S-Corporation
  • Payroll Tax Savings
  • Losses can carryover to officers personal tax returns.
  • The S-Corporation is not taxed on profits by the federal government(any profit would carryover to shareholders on form K1.
  • Income from K1's to shareholders is reduced by itemized deductions on their personal tax returns(such as medical expenses, mortgage interest, property tax, charitable contributions, etc.)

Disadvantages of S-Corporations
  • Must use the calendar tax year.
  • Losses do not carry over from year to year because they pass through to shareholders.