By creating a “C” corporation, your company will become a completely separate taxable entity from the shareholders, with the corporation retaining all profits and paying its own taxes. This allows you to offer health insurance to employees with pre-tax funds, among other benefits. However, a pitfall to avoid is double taxation, whereby the federal government can tax any revenue to a “C” corporation twice, once on the income of the corporation, and once on the dividends distributed to shareholders.

Another option is an “S” corporation, often called a “pass-through” corporation. This is because the profits or losses of the corporation pass directly through to the shareholders, who divide up the balance and mark it as either a gain or loss on their personal tax records. Income from an “S” corporation is not specifically taxable by the federal government, which protects it from the double taxation problem discussed for “C” corporations. However, the size as well as other aspects of the functioning of an “S” corporation is limited, so it is essential to realize that it may not be the proper fit for your company. Our firm has the experience to ask the right questions to provide you with the information necessary to decide upon and create the right corporation for your business.