Corporation A ‘C’ Tax Benefits – Financing

If you are forming a corporation, you may be surprised to learn that a “C” corporation has many tax benefits. While this article is not intended to replace the advice of a good tax professional, it can open your eyes to the value of a “C” corporation.

“Corporation C

The “C” in the C corporation has some legal ramifications, but is a primary designation for tax purposes. Put simply, the designation simply means that the corporation will act as its own fiscal entity. In contrast, an “S” corporation acts as a pass-through tax entity, taking its finances to the shareholder who reports the information on their personal tax returns.

The Internet Revenue Code sets the law on taxes and contains some juicy provisions for corporations. Let’s take a look at one of the advantages.

Incorporating

When one party transfers something of value to another, the IRS takes an interest. Consider that the receipt of something of value is a taxable event. In simple terms, if I get paid to form a corporation, I have to file and pay taxes on the money. Since a C corporation is an independent tax entity, what happens when you buy shares?

You have arranged to form a “C” corporation. Now you have to buy shares to become a shareholder. If you exchange money or property for the shares, the IRS takes the position that no taxable event occurred. In essence, this means that the corporation will not have to report your contribution as part of its income. If the money is not considered part of corporate income, no tax is due on it.

The exact rules for financing a corporation are a bit more complex. With any tax issue, you can expect there to be approximately fifty exceptions and qualifiers. For example, if you were trading services instead of money for shares, the above example would not apply. Be sure to speak with a tax professional to handle your particular situation correctly.

In conclusion

Many people choose a business entity without considering all the relevant aspects. Taxes are definitely one of these aspects. Be sure to research them before making a decision.