C-Corp Tax Perks

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C-Corp Tax Perks

  • A Flat 21% Tax Rate- This was a key piece of the TCJA, corporate taxes before the TCJA had a maximum rate of 35%. That put American corporations at a distinct disadvantage to foreign corporations which had much lower effective tax rates. This lead to many companies performing "tax-Inversions" which essentially had companies seeking out low tax places like Ireland, Luxembourg, and many other tax haven countries. This is a particularly vulnerable part of the TCJA, if democrats take over the legislative and executive branches it is highly likely this will be repealed and the corporate tax rate will be increased.
  • Shareholder Employee Benefits- Shareholders who are also employees can participate in the corporations employee benefit planed and take part in the associated tax benefits. These plans typically include group term life insurance plans, medical and dental reimbursement plans, dependent care assistance programs, section 125 cafeteria plans, and qualified transportation reimbursement plans.
  • Tax-Free Reorganization Potential- C Corps can achieve tax-free reorganizations with other corporations. This makes its possible fro corporations to combine via mergers, stock-for-stock transactions, and assets-for-stock transactions on terms that can effectively eliminate all corporate and shareholder-level taxes.
  • Reduced Dividend Rates- In 2003 an economic stimulus package was passed resulting in a compromise that reduced the maximum rate on "qualifying corporate dividends" paid to non-corporate shareholders to 15%. Depending on your income level, a corporate dividend could create an effective maximum tax rate on these distributions of 15%. There are many different considerations when it comes to what your effective rate will be, come in and we can discuss your situation more and see if you can lower your tax rate by applying a C-Corp dividend producing strategy.
  • Tax Year Flexibility- A C corporation may create any fiscal year it wants to maximize and alleviate accounting and administrative burdens. This can help maximize the tax deferral planning process. This is unavailable to S-Corps, partnerships, and LLCs.
  • Rollover Deferral- Section 1045 of the code allows non-corporate shareholders the ability to defer the recognition of gains on the disposition of qualifies small business stock he'd for more than 6 months by investing the proceeds in the stock of a mother qualified small business within 60 days of the sale. This is an excellent strategy for an entrepreneur moving money from one business to another. It also is beneficial for a shareholder that has had a falling out with her co-shareholders.
  • Section 1202 Gain Exclusion- This section allows a non-corporate shareholder to exclude up to 50% of the gain recognized on the sale or exchange of small business stock held for more than five years. There are a few prerequisite qualifications, but this can potentially save you a lot of money. The Protecting Americans from Tax Hike Acts of 2015 created a permanent 100% exclusion for qualifying stock purchased after Sept. 27, 2010. This creates a potential tax-free exit for shareholders who hold their stock for five years. If you have a shares that you are worried about the tax consequences come in and we can discuss if you qualify for the "1202 Twist."
  • Consolidated Return Option- Often times it can be advantageous for multiple corporations to conduct the various operations of a growing business. These multiple entities can help reduce exposure to liability, regulatory hassles, and employee challenges as a company expands into numerous states or countries. C Corporations can consolidate all these entities transactions into a single tax entity which can facilitate efficient profit and loss accounting for the "affiliated group."
  • Long-Term Capital Gain on Stock Sale- Stock of a C Corporation is a capital asset that qualifies for long term capital gain treatment. The stock must be held for more than one year to qualify as "long term." This is different from an interest in  a partnership-taxed entity (LLP, LLC, etc...) the disposition of which generally triggers an ordinary income recognition. This is especially important now that the tax rate for capital gains ranges from 15%-23.8%.
  • Corporate Dividend Exclusion- To prevent a triple taxation on corporate earnings, section 243 of the code provides and attractive deduction for C corporations paying out dividends to another C corporation.The TCJA allows a deduction of 50% and up to 65% for corporate shareholders who own 20% of the operating entity's stock, and 100% for member of an affiliated group! This is an important consideration if your company is going to be funded extensively or entirely by another C corporation. 

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