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Business Formations:

Understanding Personal Liability & Various Tax Treatments

Similar to an LLC, a Corporation’s business is separated from the owner’s personal assets. Owners are referred to as shareholders.

  • In contrast to an LLC, a Corporation is considered a separate legal entity and must submit a tax return and pay any income taxes on profits.  In some cases, this can lead to “double taxation”.  "Double taxation” occurs when the corporation is first taxed on its profits and taxes are again imposed when shareholders take those profits out in the form of dividends (those dividends are taxed on shareholders' personal returns).  
  • The first $50,000 of corporate profits are taxed at a lower rate than the personal income tax brackets.  One tax strategy used is to pay corporate taxes on the first $50,000 of profits and then have the shareholders take the rest of the profits as salary.  There is one problem with this strategy: corporations that are classified as "personal service corporations” pay tax at the same bracket as their owners.
Individuals in a corporation understanding business formation, personal liability and various tax treatments

Corporation

LAWRENCE BLAU & ASSOCIATES, LLC TAX SERVICES, ACCOUNTING AND FINANCIAL ADVISORY SERVICES