Understanding Tax Benefit of C Corporations vs. the Tax Savings Afforded by S Corporations

For the past several decades as an Atlanta CPA I have been bombarded by new business owners seeking to understand the tax benefits of a C Corporation versus the permanent income tax savings afforded an S Corporation. To this cause, I recently received this inquiry off of my website:

Hello. I am researching C vs. S Corps. Is double taxation the primary downside of using a C Corp. for a home based business. What if you avoid taking dollars out of the company as distributions by taking salary and other tax deductible benefits instead?

Many taxpayers come prepared with their own predetermined answer for me to supply them. In those circumstances, it is essential for the CPA to be a quick study and to address their individual needs both accurately and succinctly. To this end I prepared the below response:

Over the years there have been many very popular books written about this idea and though in adsentitia, they might make sense, in the bigger picture they will lead tax payers to overpay their taxes. Inherent in many erroneous tax arguments is that a taxpayer does not plan to take the monies out of their business. However, I have met to meet the client who is in business to accumulate wealth in the business and not for their selves or their family. Thus, many arguments fail at their basic level in that their initial premise is invalid. Also, it many times scenarios fail to point out the broader picture rather than the tax nuances as a whole and not just a small portion of tax law. Furthermore, I suggest all of my business clients only listen to tax advice from a CPA who has at least ten years of experience with preferably at least five years as serving as a Chief Financial Officer. By gaining the insight of both public and private accounting, a CPA will be better served/ready to address most all of your operational and tax issues.

On His CPA's website at http://www.hiscpa.com/article2.html  you will find a explanation that will teach you as to the many variables affecting entity selection for your Georgia based business. There you will find many of the rules and regulations regarding entity selection in a straight-forward style which is easy to both digest and understand. Also at http://www.hiscpa.com/article6.html you can find an actual example of how entities are taxes and the nuances thereof. I have learned that by having a sample or illustration does much to remove the mystery of entity taxation issues.

If you are already a C Corporation and desire to be taxed as an S Corporation you may make a timely election by filing Form 2553. The IRS also allows, if you qualify for certain exceptions, to make the election even if you might have missed the original deadline. To learn more visit http://www.hiscpa.com/blog/2009/05/29/atlanta-cpa-gets-back-81000-refund-from-irs-for-atlanta-client/

I am committed to living out the "Golden Rule" of treating our clients as our friends and giving the best service possible. Our goal of Serving Him as We Serve You, will help you receive the very best advice we can provide. I would welcome meeting to get started and I have time openings later this week and please note: our initial thirty minute consultation is free.

John Dillard is an Christian Speaker/Author and Certified Public Accountant in Duluth, GA. To See how he takes Christ along with him to work visit http://www.hiscpa.com/  and for his latest book Overcoming Life's 9/11's: Job's Journey and a Voice of One: Nehemiah's Prayer visit http://www.john-dillard.com/  (All Rights Reserved) Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!