The Seven Secrets of C Corporations
Why is the C corporation one of the most common business structures? There are many reasons! The following excerpt from “Loopholes of the Rich” by Diane Kennedy, CPA, explains 7 facts that will help you decide whether a C corporation is the right choice for you
A C corporation is a unique type of structure with special tax laws and the ability to pay tax at its own rate, instead of at your individual rate. That means there are unique benefits to using the C corporation as your structure. Here are my favorite reasons to use a C corporation.
Own Tax Rate
No matter how you look at it, the C corporation tax rate is graduated and if you can move $50,000 from your personal tax bracket of 35 percent to that of a C corporation’s tax bracket of 15 percent, you will save $10,000 in taxes. And that’s not just $10,000 today. It’s $10,000 year after year, as long as the tax rates and your income remain constant.
Medical Reimbursement Plan
Your C corporation can form a medical reimbursement plan that pays for all medical co-payments, dental and vision care, orthodontia, therapy, even therapeutic massage—all with before-tax money. The trick is that you can’t discriminate with the plan. If you (or another company in which you have controlling interest) have full-time employees, you will need to provide the same benefits to them that you receive.
Disability Insurance
Your C corporation can pay for disability insurance for you. It’s tax free to you and a deduction for them.
Accumulate Dividend Income
As we saw, this is one of the hot new tax strategies based on the change in tax laws. Don’t let the fear of how you will take money out of your corporation stop you from having a C corporation. Of course, it is better to have other plans for taking money out of your corporation.
Receive Dividend Income
Your C corporation can receive dividend income and pay a whole lot less in tax. If there is no ownership in the corporation paying the dividends, only 30 percent of the dividend income is taxable. If your corporation owns 20 percent or more of the company paying the dividends, only 20 percent of the dividend income is taxable.
Ability to Borrow from Pension Plans
If you have a pension plan just sitting there losing money, no doubt you’ve wondered how you can access that money to do other things.
One of the best little-known secrets of C corporations is that you can set up a corporate pension plan and roll your other pension plans into it. Then, because it’s a plan that has been set up in a corporation, you can borrow from your pension.
Generally I don’t recommend borrowing against your pension if you work for someone else because if you leave your job you will have to pay the money back immediately. But, if it’s your own company you’re much safer with this plan.
Ability to Go Public
The C corporation is the only entity that has the ability to go public. If you’re planning to grow big, sooner or later you’ll need a C corporation.
Why is the C corporation one of the most common business structures? There are many reasons! The following excerpt from “Loopholes of the Rich” by Diane Kennedy, CPA, explains 7 facts that will help you decide whether a C corporation is the right choice for you
A C corporation is a unique type of structure with special tax laws and the ability to pay tax at its own rate, instead of at your individual rate. That means there are unique benefits to using the C corporation as your structure. Here are my favorite reasons to use a C corporation.
Own Tax Rate
No matter how you look at it, the C corporation tax rate is graduated and if you can move $50,000 from your personal tax bracket of 35 percent to that of a C corporation’s tax bracket of 15 percent, you will save $10,000 in taxes. And that’s not just $10,000 today. It’s $10,000 year after year, as long as the tax rates and your income remain constant.
Medical Reimbursement Plan
Your C corporation can form a medical reimbursement plan that pays for all medical co-payments, dental and vision care, orthodontia, therapy, even therapeutic massage—all with before-tax money. The trick is that you can’t discriminate with the plan. If you (or another company in which you have controlling interest) have full-time employees, you will need to provide the same benefits to them that you receive.
Disability Insurance
Your C corporation can pay for disability insurance for you. It’s tax free to you and a deduction for them.
Accumulate Dividend Income
As we saw, this is one of the hot new tax strategies based on the change in tax laws. Don’t let the fear of how you will take money out of your corporation stop you from having a C corporation. Of course, it is better to have other plans for taking money out of your corporation.
Receive Dividend Income
Your C corporation can receive dividend income and pay a whole lot less in tax. If there is no ownership in the corporation paying the dividends, only 30 percent of the dividend income is taxable. If your corporation owns 20 percent or more of the company paying the dividends, only 20 percent of the dividend income is taxable.
Ability to Borrow from Pension Plans
If you have a pension plan just sitting there losing money, no doubt you’ve wondered how you can access that money to do other things.
One of the best little-known secrets of C corporations is that you can set up a corporate pension plan and roll your other pension plans into it. Then, because it’s a plan that has been set up in a corporation, you can borrow from your pension.
Generally I don’t recommend borrowing against your pension if you work for someone else because if you leave your job you will have to pay the money back immediately. But, if it’s your own company you’re much safer with this plan.
Ability to Go Public
The C corporation is the only entity that has the ability to go public. If you’re planning to grow big, sooner or later you’ll need a C corporation.