Question

In: Accounting

what is the main tax advantage of the corporate form of organization?

what is the main tax advantage of the corporate form of organization?

Solutions

Expert Solution

C corporation is the most common form of incorporation. It is a separate legal entity that is owned by shareholders. Most large, publicly traded companies are C corporations.

Advantages of C Corporations

Owners have limited liability. The owners' assets are protected from the debts and liabilities of the corporation. Shareholders are not held liable for business losses.

Easier to raise capital. It is easier to attract capital with the sale of stocks and bonds. A corporation can have an unlimited number of investors.

Easy to transfer ownership. Shares of stock can be sold.

Corporations have perpetual lifetimes. The entity continues to exist beyond the deaths of the owners.

Certain expenses are tax deductible. Owners can receive tax-free benefits such as deductions for retirement plans and insurance.

Main tax advantage of corporate form of organization is

With a corporation, only salaries (and not profits) are subject to self-employment, or similar, taxes. This can save you thousands of dollars per year if salaries and profits are structured properly. Many small business owners take all profits out as salaries to avoid double taxation and state corporate income tax.


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