C Corporation

This past week my husband talked to a new client for our firm, a Doctor, whose 15 year old son was in a car accident. It was his fault. They didn’t have their assets protected for 2009 and beyond. Do you need to hear the rest? They lost almost everything. He still has his practice, though, and since the IRS doesn’t recognize the lawsuit as a legitimate expense, he still owes a lot of taxes. So, the next attack is coming from the IRS and may cost him his practice too. Can you imagine starting over at 50 with a family and a huge debt?

It’s hard to believe that this time next week the turkey will be leftovers, the football scores will be final and the countdown to the end of the year will have begun. Time is moving faster and faster, which means it’s time to get those business and tax plans in order!

There will be a lot of changes coming over the next 4 years to our tax laws. There are more provisions expiring over this time period then ever before in the history of our country.

So, we’ve been spending more time than normal looking at these provisions and the tax proposals from Congress, Senate and the Presidential candidates. One thing it looks like everybody agrees on: the C Corporation tax rate must be cut.

One of the most misunderstood loopholes for income splitting is by the use of a C corporation.

C corporations are completely different from LLCs, S Corporations, Sole Proprietorships and Limited Partnerships. The biggest difference is in how they’re taxed. C Corporations file their own taxes. As an owner, you don’t get a K-1 that flows income through to your personal return. The corporation pays taxes at its own level.

I love the Medical Reimbursement plans. These work only for Sole Proprietorships (or LLCs taxed as Sole Proprietorships) and C Corporations.

They differ from a “Cafeteria Plan” that allows you to put money aside before taxes from your pay check. The Medical Reimbursement plan allows you to reimburse for medical expenses as you incur them.

A recent court case denied the deduction for a Sole Proprietorship. What did he do wrong? And, even more importantly, how can you make sure you don’t make the same mistake?