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I'm curious about how C corps get taxed. I'm considering…

Hi I'm curious about how...
Hi I'm curious about how C corps get taxed. I'm considering switching my company from a sole proprietor to a C corp.
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Customer reply replied 8 months ago
I'm a Tile sub contractor. I draw a decent salary for myself and I end up with a large sum of money that gets taxed every year.
Customer reply replied 8 months ago
I'm trying to see if switching to a C corp would allow me to save the money in the business for later investments in the business
Answered in 19 minutes by:
10/18/2017
Fred Rook
Fred Rook, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 134
Experience: 20+ years as a Certified Public Accountant, including 19 years working in public accounting firms with extensive tax, audit, write-up and consulting experience.
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Hello, my name is ***** ***** I can help you. First, I would say that some form of a corporate entity over a sole-proprietorship would be prudent so that you can protect your personal assets if you get sued. C-Corps are taxed on their profit at the corporate level, however there is a double tax here because the corporation revenue is taxed, and then again when that income passes through to C Corporation members (ex - shareholders). I would consider an LLC instead. For starters, you wouldn't have to file a separate business return (a C-Corp would require a corporate return). If you will be the sole member of the LLC, the entity would be considered a "disregarded entity" for tax purposes, and you can report the activity directly on your personal return (on your Schedule C).

Regarding your second comment, if you want I can jump on the phone with you to possibly jump-start your tax planning. This is certainly the right time to do it (rather than December)!

Let me know if this answers your question, or if you have any follow up questions.

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Customer reply replied 8 months ago
I understand the double tax issue. What is normally the corporate revenue tax rate?
Customer reply replied 8 months ago
I'm trying to see if I keep the money in the business and somehow get taxed less than I would in a sole proprietor or LLC.
Customer reply replied 8 months ago
Eventually I would like to save enough to purchase a commercial building for my business

The corporate tax rate varies from 15% to 35% depending on the amount of corporate income. I have attached a schedule that will give you an idea.

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Customer reply replied 8 months ago
These are quite high.
Customer reply replied 8 months ago
I get taxed at this as a C corp rate on net income not revenue correct?

Correct. You get taxed at the corporate tax rate (based on your corporate net income). Then shareholders pay tax on dividends or profits distributed at roughly 20%. A pass-through entity like an S-Corp or an LLC distributes the profit to the members, who then pay tax one time at their effective tax rate.

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Customer reply replied 8 months ago
Got it. So that seems like the least costly solution.
Customer reply replied 8 months ago
Are S corps LLC and regular LLC the same from a taxation stand point?

They are both "flow-through entities" for tax purposes, meaning that the profits flow to you without a level of corporate tax. However there are differences. If you form an LLC, and you are the only owner, you would only have to report the corporate activity on your schedule C. An S-corp requires a separate tax filing (form 1120S) and generally have more legal and and administrative restrictions that might or might not apply to you (ex - 100 shareholder limit, cannot be owned by business entities, etc).

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Customer reply replied 8 months ago
I see. So an LLC can be owned by another LLC.l while an s-corp LLC cannot.

Correct.

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Just a quick note, once you have more than 1 member of an LLC, you then are required to file a separate tax form (1065).

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Customer reply replied 8 months ago
Going back to taxation issues. It seems like having an LLC does not provide a tax benefit compared to a sole proprietor.

Well, the biggest advantage an LLC has over a sole proprietor is that the owners are not personally responsible for company debts. If the assets of the sole proprietorship cannot satisfy the debt, creditors can go after the owner's personal assets. That alone is worth the setup of an LLC.

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Customer reply replied 8 months ago
I agree on that aspect. I was curious if there was a better tax strategy for my business. I understand I need to change into a new form (LLC, S corp, C Corp) for the protections they provide but wanted to know what is optimal for tax benefits.
Customer reply replied 8 months ago
It seems like LLC is he way to go as you suggested and to reduce tax burden to spend as much on tax deductible expenses.

I would say the LLC is your best bet. It's essentially the same taxation as a sole proprietorship, but it provides you protection personally.

Fred Rook
Fred Rook, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 134
Experience: 20+ years as a Certified Public Accountant, including 19 years working in public accounting firms with extensive tax, audit, write-up and consulting experience.
Verified
Fred Rook and 87 other Tax Specialists are ready to help you
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Customer reply replied 8 months ago
Perfect and thank you for your advice

My pleasure. If you have any additional questions please let me know.

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