What kind of tax benefits do C-Corporations get?

Aside from the increased corporate tax rate, there are many reasons why businesses should form a C corporation. Despite the potential of double taxation, this company structure may assist businesses reduce their total tax burden. This conventional structure may be a very helpful instrument for transferring revenue for tax reasons, in addition to many tax write-offs and benefits in attracting future funding. In fact, regardless of size, many businesses utilizes the C company form. Here are 6 compelling reasons to incorporate as a C corporation:

1. Reduce your total tax load.

As previously stated, the 2018 tax reform law was a significant victory for C companies. The new corporate tax rate of 21% may result in substantial tax savings for all C companies, particularly if the company does not make regular payments to shareholders in the form of dividends. If a company owner just takes a salary, that money is not taxed at the corporate rate, tilting the tax equation even further in their favour. When money is being put into expanding operations, not collecting a dividend frequently makes sense for new or small companies.

2. Forward and backward carrying of gains and losses

Whereas LLCs and S corporations must have their fiscal year correspond with the calendar year, C corporations have greater leeway in choosing their fiscal year. As a result, shareholders may more readily transfer income, choosing when to pay taxes on bonuses and when to accept losses, which can significantly decrease tax costs.

3. Saving money for future growth at a reduced tax rate

The C corporation form enables shareholders to easily transfer money and keep profits inside the business for future development, often at a lower cost than pass-through companies. Because earnings from S companies show on shareholders’ tax returns whether they have received a dividend or not, owners may find themselves in higher tax rates even if they reinvest profits in the firm.

4. Deducting charity donations

C corporations are the only kind of corporate organization that may deduct donations to qualified charities as a business expenditure (up to 10% of taxable revenue in any one year). You may also carry over excess charity contributions to the following five tax years.

5. Carrying losses over a number of years

This company structure may sustain significant capital and operational deficits, and the IRS does not often examine companies, particularly new ones, that have losses for many years in a row. This is particularly relevant for new businesses that may incur significant losses in their first year but want to carry them forward to future years.

6. Encouragement of passive investors

The ability to carry losses through to individual tax returns is one of the most praised benefits of S companies. This, however, only applies to partners who actively engage in the corporation’s administration. As a result, passive investors benefit more from C companies in terms of taxation.