Startups

Quick Links

Hot Topics

Paychex Payroll Services: Sign up Today!

Need Some Deductions for 2011?

Don't overlook these!

10 Oddball Tax Deductions

11 Most Overlooked Tax Deductions

Updated for 2011

Business Structures

<< Previous

Disadvantages of a Corporation

Cost:

Setting up a corporation may cost hundreds or even thousands of dollars in legal, accounting, and filing fees.

Then there are the ongoing legal and accounting fees to comply with state corporation laws and federal and state tax laws.

Double Taxation:

A C-corporation is NOT a pass-through entity. Consequently, corporate net income may be taxed twice:

  1. First, at the corporate level
  2. Then again, at the individual level when the income is distributed to the shareholder as a dividend.

C-corporation Losses Not Deductible By Shareholders:

C-corporation net losses are not deductible by shareholders on their individual income tax return.

Net losses are deducted by the C-corporation against its net income of other periods.

Accumulated Earnings Tax:

A corporation may be subject to the accumulated earnings tax. The tax is 15% of earnings that exceed the exemption amount.

For C-Corporations the exemption amount is $250,000. For personal service corporations (PSC) the exemption amount is $150,000.

However, even if the exemption amounts are exceeded, regardless by how much, if earnings are being accumulated for what the IRS considers to be for the reasonable needs of the business, the penalty tax won't be imposed.

Note: Learn about exchanging property for stock in a corporation, tax-free.

Next:

C-corporations: Transferring Property Into a Corporation; Documents Used to Transfer Property

Next >>