Incorporation Attorney

Choosing to incorporate your business is an important step… but it must be done right!  That is why you need the experienced incorporation attorney, California business owners use. Merely filing Articles of Incorporation is insufficient to provide your business the liability protection and tax advantages you seek.

For tax purposes, corporations are either “C” corporations or “S” corporations.  By default, all newly formed corporations are “C” corporations.  “S” corporation status can be elected at the outset of the incorporation, and under limited circumstances, at a later date.

A “C” corporation is a completely separate taxable entity from the shareholders.  All profits are retained by the corporation, which pays its own taxes.  Traditionally, shareholders in a “C” corporation simply pay themselves a salary so that the corporation has little or no income at the end of the taxable year.  Any retained earnings are taxed at the corporate level, and if those profits are later paid out as dividends to shareholders, they are taxed again at the personal level.  This is commonly known as “double taxation” and should be avoided at all costs.  It is for this very reason that no individual or small group of investors should ever hold real estate in a “C” corporation… when the property appreciates and is sold, the payment of salaries is inappropriate (since the shareholders did no real “work”) and thus double taxation results.

An “S” corporation is commonly called a “pass through” entity.  Even though an “S” corporation has its own taxpayer ID number, all profits (and sometimes losses) pass through to the individual shareholders.  This can be a huge advantage in start-up phases, especially where the shareholder is an active participant and wants to use the start-up losses to offset profits or wages on his or her personal return.

Which is right for you? Sounds confusing? Only your C.P.A. or E.A. (enrolled agent) can give you specific tax advice.  The answer to this is the same as many questions: it depends. Contact our experienced incorporation attorney for specific information about your business.  If your business has a need to retain at all times an amount near $50,000 in liquid assets, the tax rate for the first $50,000 in profits is only 15% for a corporation, while the shareholders’ personal marginal rates are usually much higher.  Sometimes, a single shareholder (including husband and wife) corporation with no other employees wants to offer its employees (the shareholders) excellent health insurance coverage using pre-tax dollars.  The “C” corporation is usually advantageous for both.  For most other situations, an “S” corporation is best.  Our firm asks the right questions, and coordinates with your tax professional, to help you select the right corporation for your business.

Our firm can form your corporations in all 50 states, and always includes every aspect of the set up for a low flat fee.

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