If you are a doctor or business owner, let us help you with a business structure and financial strategy to reduce your income taxes.
C-corporations enjoy their own graduated rates. The first $50,000 of taxable income in the C-corporation is taxed at a 15 percent federal rate versus the top marginal rate of the shareholder (currently 35 percent) that the owner of an S-corporation will be taxed.
Even if the owner of a C-corporation forgot to zero out the corporation and left $50,000 in the entity, the corporate tax would be only $7,500. A divided of the remaining $42,500 would only be taxed at a rate of 15 percent, resulting in taxes of another $6,375 and leaving $36, 125 (or 72.2 percent).
If the 50 percent had been in an S-corporation and the owner had an annual income of more than $300,000, the federal tax rate would have been 35 percent (or $17,500). In this example, leaving $50,000 to be taxed in a C-corporation would actually have saved the owner more than $3,600 in taxes!
Personal service corporations (PSCs) such as attorneys, doctors, and accountants, do not receive the benefit of these graduated rates since PSCs are taxed at a flat 35 percent rate. Therefore, PSCs do not enjoy the same benefits of the graduated C-corporation rate structure that other types of businesses will enjoy. However, PSCs can take advantage of the full Section 179 expense deduction in writing off furniture and equipment in the year of purchase.
C-corporations are afforded their own Section 179 deduction limitation. Shareholders of an S-corporation must accumulate the Section 179 deduction among each of their pass-through entities, thus they could be limited in a given year.
If the practice has rental activity, a C-corporation which is not a PSC has the advantage of using rental losses to offset operating income. Shareholders of an S-corporation must treat rental losses as a passive activity subject to the passive loss and at-risk rules.
We at Harding Financial can help direct you to a CPA and together with you help you implement a financial strategy to reduce income taxes. Contact Connie 408-854-1883 firstname.lastname@example.org