7 Tax Advantages of C Corporation in the USA

Introduction

Entrepreneurs may choose a C corporation for a number of advantages. This corporate structure can really assist business owners in reducing their overall tax burden, even though there is a chance of double taxation. Along with significant tax write-offs and benefits for obtaining future financing, this classic structure can be a beneficial tool for relocating money for tax purposes. Here in this blog we will mention all the tax advantages of C Corporation in the USA. Before discussing the tax benefits, let’s quickly review “What is C corporation?”

What is C Corporation?

A C corporation (or C-corp) is a legal company in which the owners, or shareholders, pay their own taxes. Profits from C companies, the most popular type of corporation, are also taxed. Profits earned by a company are taxed at both the corporate and individual levels, resulting in a scenario of double taxation.

A C corporation differs from other business structures such as an S corporation or a Limited Liability Company (LLC) in that it is obligated to pay both federal and state taxes. While alternative arrangements merely require shareholders to pay taxes on any profits they get, C companies maybe subject to double taxation because profits must be paid by both the firm and the owners.

What are the Tax advantages of C Corporation in the USA?

The 7 tax benefits of C corporations in the USA are explained below.

• Reduce overall tax burden

C corporations gained significantly from the 2018 tax reform bill. If a company does not frequently distribute money to owners in the form of dividends, the new corporate tax rate of 21% might result in considerable tax savings for all C corporations. The tax situation goes further in their favor if business owners are merely taking a salary because that sum is not taxed at the corporate rate.

• Writing off donations to charities

The only corporate organization type that is permitted to deduct contributions to qualifying charities as a business expense is a C corporation. Contributions to eligible charities cannot exceed 10% of taxable revenue in any given year. Overage payments to charities can also be carried over for the next five tax years. This will help C-corporation in saving taxes.

• More flexibility in paying taxes 

For LLCs (Limited Liability Companies) and S corporations, the fiscal year must match with the calendar year; however, C corporations have more freedom in choosing their fiscal year. By choosing when to absorb losses and when to pay taxes on bonuses, shareholders can shift money more easily, which can significantly lower tax payments.

• Options for better fringe benefits for C Corps

The majority of fringe benefits paid by the company, such as the cost of group-term life insurance, accident or health plans, as well as meals and lodging provided for the employer’s convenience, cannot be deducted by pass-through owners who make-up more than 2% of the ownership. On the other hand, a C Corporation has more alternatives for retirement plans and can write off the costs of owner-employee health insurance, employee-owned auto-mobiles, life insurance plans, long-term care plans, etc. C Corporation owner-employees receive these advantages tax-free.

• Losses can be carried forward

The IRS does not typically scrutinize businesses, especially new ones, if they show losses for multiple years in a row. This corporate structure can absorb significant capital and operating losses. This is crucial for new businesses who may suffer substantial losses in their first year but want to roll those losses over to succeeding years. Thus this will help C Corporation in reducing there tax burden by forwarding there losses.

• Accumulating money at a reduced tax rate for potential expansion

In general, the C corporation model is less expensive than pass-through entities and enables shareholders to easily transfer income while keeping earnings within the business for future growth. Owners who invest profits back into the business may nevertheless find themselves in higher tax brackets because S corporation profits are shown on shareholders’ tax returns whether or not they have received a payout. Due to which it is better to select C Corporation as compared to S corporation because it will help in reducing tax rate at the time of business expansion.

• Less Ownership Constraints

C Corp owners benefit from greater flexibility and less restrictions, in contrast to S Corp owners who must adhere to numerous stringent IRS requirements. A C Corp is allowed to have an unlimited number of shareholders, including international investors, and more than one class of stock.

Conclusion 

C Corporation has proven helpful for small firms as well as for multinational companies. C-corporation reduces the disadvantages of double taxes, which will aid in business expansion and increase revenue.