Nationaltaxattorney

To be... or not to be a C-corporation under the new tax laws. While C Corporations may be taxed at 20% the overall taxes are still going to be higher than an S-Corporation.



Basically an owner of a C corporation pays double tax. A C corporation pays 20% tax on it's bottomline. The owner/shareholder also pays tax on the income he receives from the C corporation. If the owner takes his/her income as dividends he could be taxed at 38.5% plus 3.8% for payroll tax. If the owners sells long term capital stock back to the corporation then he could be taxed 20% plus any applicable 3.8% Obamacare surcharge



Here is an example. If National Tax Attorney was taxed at 20% as a C-corporation, with a profit of $100 and bought back $80 of long term capital stock from the owner the overall tax would be as follows: Corporate tax would be $20. The owner/shareholders capital gains tax would be $16. This would leave the owner with $64 in his pocket.



If National Tax Attorney was taxed under the senate bill as an S-Corporation, with a profit of $100 the owner would be taxed on his returns at 31.8%. This would leave the owner with $68.20 in his pocket.



If National Tax Attorney was taxed under the house bill as an S-Corporation, with a profit of $100 the owner would be taxed on his returns at 25%. This would leave the owner with $75 in his pocket. The S corporation is better off under either of the two bills.


 

Different tax rates apply to personal service corporations and will be addressed in a different article.