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Tax Benefits of A “C” Corporation - Funding  by: Richard A. Chapo 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. “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 tax returns. 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 advantages. Incorporating 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. In Closing 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. About The Author Richard Chapo is with http://www.sandiegobusinesslawfirm.com - providing legal services to San Diego businesses. This article was posted on August 31, 2005 Read More Articles from the "Legal" Category: Sunshine State Seeing Yellow Thanks To Lemon Laws by Earl Powers Junk Faxes – New California Law Challenged by Richard Chapo How To Save $37,500 On Legal Fees AND Protect Your Co-Parenting Relationship by Belinda Rachman, Esq When Do Public Bodies Have To Consult The Public Before Taking Action? by Ian Mann Home Office to Restrict Bulgarian and Romanian Workers by Charles Kelly Injured Plaintiff’s Win Today With "No Win...No Pay...No Risk" Lawsuit Loan by Kari Gray Developing Of Construction Bond by Ron Victor Timely Filed H-1B Petitions: Avoiding 4 Common Mistakes to Prevent Rejection by John Mei The Role of Your Wrongful Death Lawyer by Mart Gil Abareta Who Is Most Likely To Become A Target Of Crime? by Bill Wallmuller << Back to "Legal" Index

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