C Corp entities are different than any other entities, in that they are separate and are not pass-through entities. They are the only entity that pays its own taxes, and due to the 2017 Tax Cuts and Jobs Act, has a flat rate of 21%, which before had a graduating tax rate based on profit. Just as an S Corp, C Corps help protect shareholders from personal liability if protocols are followed and separation between business and individual interests are kept apart. The stock with a C Corp is that you can have multiple levels of classes, as well as multiple amounts of stockholders, including public trading, which opens an entirely different set of rules and practices which need to be addressed before taking it on. This would include registering with the Securities and Exchange Commission. The other biggest difference between the C Corp and S Corp is the distributions to shareholders. Any dividends (distributions) are considered taxable to the shareholder at their own personal tax rate and issued a 1099-DIV by January 31st by the close of the calendar year.
Tax Filing
Partnerships and LLCs are often elevated into C Corps, within 75 days of the formation of your entity or the calendar year. However, there are exceptions to filing late of up to 3 years and 75 days by making a special request.
Company Paid Fringe Benefits for Employees
- Health Savings Accounts (HSAs)
- Contributions to accident or health insurance
- Long-term care insurance
- Out-of-pocket healthcare expenses
- Archer Medical Savings Accounts (MSAs)
- tax free contributions to each are limited to $5,250 annually for a single filer and then $10,600 for a family
- Education expenses up to $5,250 annually
Tax Issues
- Due to the amount of unlimited amount of shareholders and classes of stock, you must have very specific and detailed rules for shareholder and director meetings, how the classes of stocks are handled, and corporate laws with strict record-keeping requirements
- An extra advantage of raising funds is selling additional stock, you must be careful to monitor your ability to not dilute the percentage of value between the majority and minority shareholders
- When the C Corp reaches a threshold of at least $10 million of assets or at least 500 shareholders, they must register with the Securities and Exchange Commission under the SEC Act of 1934, without fail and require annual filings
- For a C Corp to be dissolved, all shareholders must agree and adopt a form for dissolution, and file Form 966 (Corporate Dissolution or Liquidation) with the IRS
Late Tax Filing Penalties
Currently the deadline to file Form 1120 is due on April 15th of the following tax calendar year, with an automatic IRS tax extension filing due by October 15th. Every month after April 15th, a $220 penalty per shareholder for up to 12 months, a 5% penalty on the unpaid tax charged for each whole month or part of a month it is late, a maximum of 25%.
Other Tax Considerations
- If a C Corp isn’t the right entity type for you, any profits or losses accumulated, you cannot transfer it to another business entity – it stays with the business set-up
- C Corporations have no restrictions on ownership
- Detailed voting records on corporate decisions are extremely important to keep track of due to the amount of liability and shareholder challenges you could have if there are a significant amount of shareholders involved with your corporation
- For any losses or insolvency upon the closing of the corporation, they stay with it and are not transferred to shareholders
If you are interested in determining if this would be an opportunity you wish to pursue, contact a tax resolution associate with Bookkeeping-Results, LLC to determine if this is an option for you.
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