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Tax Planning Strategies for Entity Optimization: C Corps

Did you know that the entity of a business can have a significant impact on its taxes?

A less than ideal entity could result in overpaying the IRS, but most business owners and their accountants do not realize how much money they’re actually throwing away every year.

Take, for example, business owners who have C Corporations.

This is an entity type where owners or shareholders are taxed separately from the business itself. 

Practically speaking, this results in taxing of profits at both the corporate and personal levels, creating a situation of double taxation. 

Why would anyone choose a C Corporation if it results in being taxed twice? 

Well, a C Corp allows owners to retain earnings inside the business, which can be useful if you want to delay paying taxes. 

If you’re making $5 million dollars, you may not want to take all that money out of the business each year and get taxed on it. 

Instead, that money can be reinvested in research and development or further growth opportunities.  

C Corps also allow for greater scalability because they can be publicly traded with no limit on the number of shareholders. 

In summary, the main advantages of having a C Corporation are: 

The ability to retain earnings inside the business

The ability to have more than 100 shareholders

The biggest drawback of having a C Corp is:

Double taxation when taking profits.

Because of this drawback, many businesses might benefit by changing their C Corp structure, especially if they’re not concerned about ever going public.

But what is the best entity to change to if you already have a C Corp? 

The truth is, those who don’t do tax planning won’t know which entity is ideal for tax purposes for their particular business.

That’s where tax planning software comes in, which supports strategic entity planning that can help optimize a person’s tax situation.  

Automatic calculations for multiple strategies, entities and years make  comprehensive tax planning possible.

Browse our website for much more on tax planning and how to legally reduce taxes by choosing the best entity for you.