When you are associated with business, you certainly know the importance of tax implications. Sometimes this certainty of taxation can occur twice in the same tax year. Getting your income taxed twice must be the last thing that anyone would want in a tax year and being a part of the business world. Double taxation for c corporations is equally unpleasant for the members of the company.
It normally happens when the shareholders of the corporation pay tax on the capital gains and dividends received from the company. And then the corporation also pays the tax on the profits it is making in the tax year. However, you must realise to speak with a professional to avoid double taxation. You must be wondering about several queries related to double taxation. Most of them are outlined in this comprehensive guide. This involves the points of what is double taxation, why is it so important, what are some smart ways to avoid double taxation, and how to ensure that you are not taxed twice in the same tax year.
Talk to one of our intelligent and clever professionals to get your further queries about double taxation for c corporations. We will ensure to come up with the best possible solution for you.
What is Double Taxation for C Corporations?
The reason why people are into debates about double taxation and finding smart ways to avoid such a scenario is that the same money that is earned within a tax year is being taxed twice. It is imperative to mention here that there are two separate and unique entities involved in this procedure. This includes individuals and the business typically. Both cases are earning income in different ways. This is because a c corporation is considered an independent entity and has its own recognition other than the shareholders.
What is the Reason that Double Taxation Matters a Lot?
There are several cases of getting the argument over the corporation earning from the customers and the individuals getting money from the corporation is a confusing procedure. People also question the dividends given to individuals who are not being taxed appropriately and being a reason for money accumulation. Which is not taxed. There is a way to avoid double taxation if the corporation opts not to give dividends to the individuals.
What are the Smart Ways to Avoid Double Taxation for C Corporations?
Double taxation is mostly experienced by c corporations. This is because of the fact that the corporations pay the tax separately for their earnings and the shareholders pay the tax as well. Because the dividends given to the shareholders are taxed. This applies to the individual rate even after the tax is paid on the corporate level.
Moreover, there are several ways to avoid double taxation. Some of the prominent ways are outlined and explained below:
1- Set Up a Flow-through Business
This process will help you to plan the lease by the second business set-up. It will be helpful for your c corporation and management of money. An LLC structure developed can purchase equipment and give it to a c corporation on lease. This will help to generate flow-through income.
2- Take a Loan from the Corporation
In case the owner of the corporation takes some amount as a loan from the company accounts, this will not be dealt with as dividends. The loan will be required to pay back with the amount of interest.
3- Employ Your Family Members
If the family member of the company owner works for the company, they are eligible to get the salary for the job done. This is a smart and easy way to avoid tax implications and take money from the corporation. This rule is applied to family employees as well.
4- Avoid Paying Dividends
It is suggested by the professionals that the corporation should promote getting salaries rather than dividends. The personal rate will be applied to get the salaries taxed, which is a beneficial option for the corporation.
5- Retain the Earnings
If the dividends are not given to the shareholders. They only receive the amount from the company in form of a salary. The amount of salary is taxed on the corporate level only once. This will help you to avoid double taxation.
The Bottom Line
Now that you have gathered a fair amount of information about double taxation for c corporations, we can bring the discussion towards wrapping up. It is important to avoid double taxation for corporations to grow at the required pace. Otherwise getting taxed twice on the same amount earned is a loss for the business. We hope these few minutes of reading will help you to develop a better understanding and you will be able to handle the double taxation for c corporations in a better way.
If you seek professional help, learn more about double taxation for c corporations. Why wander somewhere else when you have our young and clever team of professionals at Accotax?
Disclaimer: The information provided in this blog about double taxation for c corporations, including the text and graphics, in general. It does not intend to disregard any of the professional advice.