The Benefits of Forming a C-Corporation

There are many benefits in forming a C-Corporation. You don't have to be some sort of huge corporation to want to be a c-corporation. There are many benefits also for closely held corporations. The obvious benefit is to be able to write off a wide variety of employee benefits, including to stockholders, tax free to the expense

of the corporation.

The first one is health care costs. Say your corporation has five employees, including the owner (yourself) and his or her partner. Health insurance for a single person can easily be $400 a month, $800 a month for couples and $1600 for a couple with two children. Say for two single people, plus three people married with 2 children each, that is an expense of $6400 a month, or $76,800 a year. That can eat up quite a bit of corporate profits.

In addition, there are dental care plans, and qualified education costs, group term life insurance of up to $50,000 per employee, company owned vehicles provided to employees and public transportation costs. This is all things that can be paid, and legally, without paying not one bit of state, local or national taxes. Isn't that something to smile about? I'm also sure there are other business expenses to consider when dealing with clients. We all remember notorious gossip about the three-martini lunch, but you can also have a nice expense paid business lunch without getting drunk. That's where the real prurient interest is in this topic. (Is it really a business lunch, or are you just getting funny with your secretary?).

Another factor to consider is that corporate profits themselves do not have to be taken out of the corporation, at least not immediately. You can make a profit, and leave it in the corporation, where it is only taxed at 15%, not at 28% like a good chunk of higher income is taxed. The tax rate on the first $50,000 of profits is only 15%.You can decide to leave money in a corporation for capital purposes or for reinvestment purposes. If you claim it as liquid cash, you will eventually have to pay taxes on it, but that could be much later, even when you are selling the corporation and have no other sources of income.

This is why professional accountant often feel that too many business people overlook the advantages of a C-Corporation, even one that is closely held. (A closely held corporation is one where the stock is only owned by a small group of people who run the corporation.). The owner and his partner can receive a reasonable salary, which also lowers corporate profits.

People can go nuts on the double taxation issue, but it can be something that is not that bad for closely-held corporations. After all, after those salaries to owners too, the health care, the other fringe benefits, etc, you may not have that much corporate profits left over any way, and you can choose to reinvest these profits in the corporation for further expansion.

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