5 Considerations When Starting a C Corp
Running your business as a C corporation puts a clear line between your personal tax status and the company's. Unlike S corporations, C corps are not flow through entities, so the tax liability remains with the company itself, not the shareholders. You will need to keep all of your income and loss information for the company separate from all other entities. You can work with a tax preparer to create a suitable tracking system for your C corp. Here are a few things to consider when starting this type of corporation.
Control Profits for Ideal Tax Rates
When operating a C corp, you can apply generous tax deductions on yearly income sitting just below $75,000. You can control your total profits by pouring a percentage of your profits back into the company to gain inventory or increase payroll amounts. The savings you receive at the end of the tax year should also go into furthering your company's potential for success.
Utilize a Fiscal Year Calendar
Oftentimes, the best way to stay in control of your yearly income rating is by utilizing the fiscal year calendar. Upon creating your business, you can identify the unique start and end date for your company's fiscal year. At that point, make sure to apply your profits to associated business costs to cut the income down to the right level. Otherwise, you may face double taxation on the amount surpassing the $75,000 maximum.
Apply Insurance Deductions
As an owner of a C corp business, you are considered an employee in the eyes of the government. Therefore, it's possible to receive health insurance benefits, including reimbursement accounts, through the C corp. Profits from the corporation can be used to pay for prescription medication and medical services to further reduce company profits before the end of the year.
Secure Unlimited Shareholders
The S corp designation directly controls the amount of shareholders your company can utilize to just 100 individuals. With a C corp business, you can have as many shareholders as you need funding the company. The shareholders will continually contribute to the company's growth in anticipation of receiving a payroll kickback at the end of the fiscal year. The majority of the shareholders must still be US residents to qualify, however.
Stay Open to Going Public
If you ever want to open up your company to receive public shareholders, you must continue to run the business as a C corp. If you want to receive extra financing opportunities or quickly build your stock value, you will need to maintain a public enterprise. Once you go public, you will see your stock listed in the exchange, which can be quite exciting for even the most seasoned business owners.
If you keep the above factors in mind while creating your C corp designated business, you'll avoid many of the pitfalls that plague new owners. If you have any questions about corporation tax or set up requirements, talk to your preparer at The Income Tax Center in St. Louis, Missouri.
