Advantages of Corporations
up a tax structure that would work for their particular business, with this you may
need the help of an attorney or a tax professional so you could get the most out
of these advantages.
Some of the items that companies can declare as tax deductible are:
- Medical insurance for families
- Retirement plans for employees may be set up as a fringe benefit for the company and can be tax deductible.
- Company losses (it is fully deductible for corporations, as compared to sole proprietorship companies that have to justify losses as a profit move before they could declare it as a loss)
- Profits (as a tax advantage, these could be used for further expansion of your business)
Only salaries can be subjected to self-employment or similar taxes for all
corporations. If properly structured, salaries and profits can save you thousands
of dollars per year in taxes.
Corporate Taxes and Small Businesses
All levies placed on profits of a firm aimed at raising taxes is what is called a
corporate tax. This is calculated by deducting expenses from operating earnings,
including cost of goods sold, and revenue depreciation's.
To avoid state corporate income tax and double taxation, many small businesses
take out all their profits from salaries rendered, although there are rules that
require that salaries rendered should be reasonable. If it is found that a
shareholder’s salary is relatively too high in relation to his or her functions or
position in the company, the shareholder’s salary maybe considered in partial as a dividend, and thus may be subjected to double taxation.
Leasing Assets to you Corporation
One tool that many people use to reduce their overall tax liability is by leasing
assets that they own to their own corporations. One classic example is leasing
your personal vehicle to be used for corporate purposes such as to ferry or
transport corporate executives, or for delivering goods and materials. By doing
such, the company pays you a lease or a rental fee which then you can claim as an income from rentals. This allows you as the vehicle owner (lessor) to deduct
maintenance costs and repairs on your taxes. This set up can be easily
accomplished by creating a lease agreement with your own corporation as long as you meet the following criteria:
- That there is a valid lease agreement between you and your corporation that you would treat as an unrelated party and not as an internal agreement between you and your company.
- That rental fees you charge are reasonable, fair, and comparable to charging rates of other service vehicle companies within your area.