If you run a business read this article to find out the tax
benefits of different types of incorporation.
Tax Benefits of A 'C' Corporation - Funding
If you are going to form a corporation, you might be
surprised to learn a “C” corporation comes with a lot of tax benefits. While
this article isn’t intended to replace the advice of a good tax professional, it
may serve to open your eyes to the value of a “C” corporation.
The “C” in C corporation has a few legal ramifications, but
it is primary a designation for tax purposes. Put in layman’s terms, the
designation simply means the corporation will act as its own tax entity. In
contrast, an “S” corporation acts as a pass through tax entity, pushing its
financials down to the shareholder who report the information on their personal
The Internet Revenue Code sets out the law on tax and it
contains a few juicy provisions for corporations. Lets take a look at one of the
When a party transfers something of value to another party, the IRS gets
interested. It views the receipt of something of value as a taxable event. In
simply terms, if you pay me for forming a corporation, I have to report and pay
taxes on the money. Since a C Corporation is a stand alone tax entity, what
happens when you purchase stock?
You have made arrangements to form a “C” corporation. Now you have to buy
stock in it to become a shareholder. If you exchange money or property for the
shares, the IRS takes the position no taxable event occurred. In essence, this
means the corporation will not have to report you contribution as part of its
revenues. If the money isn’t considered a part of the corporate revenues, no tax
must be paid on it.
The exact rules for funding a corporation are a bit more complex. With any
tax issue, you can expect there to be roughly fifty exceptions and qualifiers.
For instance, if you were to exchange services instead of money for the stock,
the above example would not apply. Make sure you speak with a tax professional
to handle your particular situation correctly.
Many people choose a business entity without considering all relevant
aspects. Taxes definitely constitute one of these aspects. Make sure you look
into them prior to making your decision.
Richard Chapo is with
http://www.sandiegobusinesslawfirm.com - providing legal services to San
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