Corporations: Incorporating a Small Business

A regular corporation or C corporation is a legal small business entity separate from the owner(s) of the corporation with its own purpose and charter. It has an individual federal tax identification number (EIN) and is responsible for paying local, state and federal taxes. Dividends or profits paid out to the owner(s) or shareholder(s) are also taxed via personal tax returns, resulting in “double taxation.” The corporation may not deduct the dividends it pays out.

A corporation can be costly and complicated to form, must keep complex bookkeeping records, pays higher taxes than individual rates, pays recurring annual fees, and may not deduct business losses. On the other hand, the owners have limited liability, profits paid out to shareholders can assist with lower tax rates, it has the advantage of a broad range of tax deductions for the business, and it is much easier to establish a business credit score and obtain financing from lenders. Please contact us for help with questions about coporations and incorporating a small business.