"C" Corp? Why?

Comments(11)

• 
  nebulousd2nd December, 2003

  get a new account.
  
  Your better off with an S-Corp to do rehabs

• 
  Marcher2nd December, 2003

  What reasons does your accountant give for setting up a C corp? I had an accountant recommend against an LLC, and that I should hold all my real estate personally. Turns out he didn't know anything about LLCs, and risked losing my business if I went that route, which I did (and he did lose my business).
  
  Accounting, regulartory and tax related fees sound a lot more expensive for a C corp than an S corp or LLC. Could that be part of it?

• 
  Soul_controller2nd December, 2003

  My understanding it is becuase when you sell thouse house out of C corp you do not get the money let me explain. in C orps it has it you get paid through profits so the taxes is strictly capital gains which i think is 15% now... Where as in an LLC or S-corp it goes directly as part of your income so u get the capital gains tax and then the your personal income tax bracket goes up so depending on how much you make they can take a chunk of it... Where as in a c-corp you still have the pay taxes on the year but after your company has taken care of it's expenses.... So here is the example c-corp 100k then u buy a car that is 50k for bus purposes of course and other things another 20k or hell even finance another house that u want to rehab at the end of the year u have to pay ttaxes he 40% on the 30k left in a c-corp... Where as in an LLC or S-corp you must pay it up front becuase the profits go directly into personal income so at the end the year you pay 40% on the whole 100k regardless of what you bout that year on top of the 15% you paid capital gains... Hope that helps...

• 
  Marcher2nd December, 2003

  Soul_controller
  
  I am not sure I follow you.
  
  -an LLC or S corp can also claim expenses such as vehicle or other property, and the income that flows through to your personal return would be after those expenses are deducted
  -You mention a 50K vehicle, but how is all of that deductible as an expense? Even a C corp could only deduct the appropriate depreciation couldn't they? An LLC or S corp could also deduct this.
  
  My understanding of the big disadvantage of a C corp is double taxation if you want to get money out. In the example above, the C corp pays 40% on the 30K that was left, and then if you take it out you pay another 20% or so in personal taxes.
  
  I am no expert, and I realise at some stage it does become advantagous to do a C corp, but also can't see it for the smaller investor. Anyone else care to comment?

• 
  bansal2nd December, 2003

  The reason is that unless you use a C-corp the IRS will stick you with "dealer" status when you flip properties, which will create an unfavorable tax situation for you where you have to pay self-employment taxes. There seems to be a lot of confusion on these forums, but LLC and S-Corp as pass through entities will not protect you from dealer status. Take your accountant's advice.[ Edited by bansal on Date 12/02/2003 ]

• 
  Marcher2nd December, 2003

  Hi Bansal
  
  Perhaps you could explain a little more about "dealer" status? Can this happen to anyone in an LLC? Or is there a threshold of volume that if you cross they consider you a "dealer."
  
  Thanks

• 
  nebulousd2nd December, 2003

  quote where the IRS says this.
  
  I've heard this argument tons of times...and I've heard the good the bad and the ugly. And owe boy do I see it coming again.
  
  But, please find what exactly the IRS says.

• 
  bernel772nd December, 2003

  Interesting. But still don't know what to do.
  I will see an attorney this week.
  thanks.

• 
  bernel772nd December, 2003

  Interesting. But still don't know what to do.
  I will see an attorney this week.
  thanks.

• 
  gamado2nd December, 2003

  An S corporation operates much like a partnership; no taxes are paid by the partnership or the S corporation. Income and losses are passed through to shareholders on a current basis and shareholders report on their personal income tax returns, as income, their pro-rata share of profits and losses (except losses are limited to the shareholder's basis in his or her stock or debt). Generally, the corporation pays no tax;. A C corporation is a separate tax paying entity with its own tax rates. The C corporation files a tax return and pays tax on its income. If the C corporation then distributes its earnings to its shareholders, the shareholders take that amount into income as dividends, creating a double taxation.
  
  There's a lot more to it, but that's the basic concept. I Think the advantage of a C corp comes when you can issue stock and/or sell the company.
  
  Get a new accountant

• 
  InActive_Account2nd December, 2003

  I have never heard of the IRS making a distinction between a c-corp and an s-corp in regard to dealer status.
  
  The distinction between c and s is how you are taxed. c is taxed on the corporate level and the personal level and s is only taxed on the personal level, s is a flow through entity, meaning what ever profit the company makes is taxed as personal income. That is why 99% of small businesses are s corps, to avoid the double taxation.
  
  Someone gave some examples of the benefits of being a c corp in that you would spend the profits on business expenses and not get taxed on them only in a c-corp which is false, that is the same in any business entity, sole proprietor, partnership, LLC, or corporation.
  
  In simplist form: Profit = gross sales - expenses in any entity.
  
  The difference is in a c-corp the corporation first pays corporate tax on that profit, then you take you paycheck, or lump sum disbursement and then pay tax again at your personal level. In a s-corp the profit is flow through. No corporate tax is paid and the profits are taxed at your personal level. That is why a c-corp is considered a double taxing entiy and an s-corp isn't and why 99% of all small businesses are s-corps.
  
  Here is the bottom line:
  
  If your accountant can't make you understand why you should do one thing or another - it is like the old joke "what time is it when the elephant sits on your fence?- time to get a new fence" - it is time to get a new accountant. I wouldn't do business with anyone who is directly responsible for my financial well being that can't comunicate information to me in a way I can comprehend.