Traditional C Corporations have grown in popularity as the maximum corporate tax rate of 21% falls below many individual tax rates. I love a good C Corporation but please be sure that you understand how to pay yourself from your C Corporation as it is not as flexible as the ever popular S Corporation. For a comparison between, entity types, go to my website and find the worksheet in our Resources section.
The simplest but most expensive way to pay yourself through your C Corporation is with Wages and issue a Form W-2 in the same manner as any other corporate employee. These Wages are deductible to the corporation and then taxable to you as an individual on your own personal tax return. These Wages are also subject to Payroll Taxes, being social security, medicare and unemployment taxes.
- You can issue yourself Dividends from your C Corporation. These are not deductible for the corporation and are taxable to you, the recipient.
- You can Loan yourself monies from the corporation. Be careful to not be too aggressive with loans as the IRS has been known to reclassify loans as dividends.
- You can charge your corporation Rent for the use of personally owned property. Keep good records and don’t be greedy. The IRS also likes to challenge rental agreements!
- Fringe Benefits are one of the most popular payment methods in C Corporations. These can include health insurance and medical expense reimbursements, educational assistance, life insurance etc.
Yes, used appropriately, a C Corporation can reduce your tax burden. Make sure you discuss the details with your tax advisor to see if this would be a good fit for you and your business.