Do’s and Don’ts of Operating Your C-Corp

Posted on Dec 28, 2020 by Trembly Law

All corporations are not classified as equal. When it comes to filing taxes, knowing what you can classify your business as is an important first step. A C corporation is a corporation that is taxed separately from its owners. This generally includes all for-profit corporations. An S corporation, however, does not pay income tax, but its shareholders do. These distinctions are only for filing taxes. If a small business meets certain requirements, which most of them do, they can file as a C corporation.

Here are some “Do’s and Don’ts for running your C corporation:

Do:

  • Retain all tax records. This is good practice for anyone, but especially for C corporations. If they relate to business property, keep them three years past when you think you should.
  • Move profits and losses. C corporations can define their own fiscal year, which means they can move profits and losses backwards and forwards as need be to maximize their tax return.
  • Deduct medical premiums. As long as health insurance is available to all employees (not just shareholders,) there are significant write-offs you can get for medical premiums.
  • Carry losses over multiple years. It is likely in your first year of running a C corporation you will have significant financial losses, but it is possible to carry them across multiple years.
  • Write off charity contributions. C corporations are the only type of corporation that can write off charitable contributions on their taxes. Trips to Goodwill count!

Don’t:

  • Overlook carryovers. Oftentimes, credits and deductions have rules that stop you from using them fully in the current year, but allow you to carry them over to the next year.
  • Maximize your tax burden. The 2018 tax reform means that C corporations can be taxed at a much lower rate, especially for businesses that only pay salaries, not dividends.
  • Receive dividends. For C corporations, they get taxed twice. Instead, pay employees enough that there are no taxable profits at the end of the chosen fiscal year.
  • Discourage passive investors. Unlike S corporations, C corporations attract and reward passive investors.

When you’re just starting a small business, you have a lot on your plate. Becoming a C corporation and learning how to best handle your taxes is a must for all business owners! For more information about C corporations and running your business, contact Trembly Law today! You need an experienced business law firm on your team.

Follow Us on Social Media