Benefits of the C corporation

 

Health Insurance and medical expenses

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Corporation or Limited Liability Company (LLC), business name filing for the state of Alabama, Alaska,  Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,  Louisiana,  Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio Oklahoma,  Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee,  Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

 

 C corporation  can deduct 100% of the employees health insurance, and fully deduct the costs of any medical reimbursement plan. A lot of medical expenses that aren't covered by insurance, the C corporation can establish a plan that results in all of those expenses being deductible

Fringe Benefits

  • Qualified education costs,
  • group term life insurance up to $50,000 per employee,
  • employer-provided vehicles and
  • public transportation passes.

If you have other employees who are not family members, be sure to follow the rules that cover employees under a benefits plan.

 

Favorable tax treatment

 

  • First $50,000 in annual profits is taxed at a rate of 15%.
  • 39% at the $100,000-income level

If you are the owner of the corporation pay yourself that profit in salary so long as the total constitutes a reasonable salary . If you make more than $50,000, pay yourself $50,000 and leave the rest in the corporation -  you get to take advantage of that 15% rate, but eventually you have to take the money out of the corporation.

Double-taxation

After paying all of its expenses, the corporation pays tax on those profits. When profits are received by you as a shareholder, you pay personal income tax on the dividends. However,  small businesses have little left in earnings after salary and  fringe benefits so no double-taxation issue.  Even if there is a dividend,  delay receiving the dividend and pay the tax on it for several years.

A warning - earnings tax and the personal holding company tax can be complicated, so consult a tax specialist.

 

 

 
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