C Corporation

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?