Hi, Mark Kohler here with another two-minute tax and legal tip now I'm going to try to keep this to two minutes
But it's a big topic this [c-Corporation], when do we use the C corporation
they're sold to us all the time on radio Ads and TV aDs and
Apparently the next best thing to sliced bread because all the fortune 500 companies have one and you should do well
What's the truth now the first benefit of a C corporation is basic, and you all know it it's asset protection
I get the
Benefit of the corporate veil as it's called and if you are acting responsibly as a business owner
You are protected if anything goes wrong in the business [Pacini]. You are protected
And I've got other [videos] on my YouTube
[channel] as to how to protect the corporate veil watch them now [a] important point here is the C
Corporation corporate veil is the same as an s corporation or an LLC
If anything goes wrong in the business you are protected
That's the point so don't think the C corp has any better protection than any one of those entities
But it is a benefit of incorporating
the second main benefit of a C corporation
And why you here adds that all the fortune 500 companies or C corporation is because they can have multiple shareholders?
Thousands of Shareholders they can raise capital
by getting shareholders to give the corporation money and by giving the Corporation money the
corporation can Expand and go public or get big and
deliver their product or service
Nationwide Or worldwide
That's why these big companies are C corporations, but it may [not] be the best for you as a small business owner
Now the biggest con to a corporation and drawback is double taxation and we've got to get it out there on the table
These big corporations that want to have thousands of shareholders to raise capital
They know they've got to pay corporate tax that are ok with it
But for [us] small business owners this may not [be] the best fit because let's say we bring in
[$100,000] and we spend
$25,000 on expenses valid expenses and we write often we net
$75,000 well corporate [taxes] now kick in if we want to take any money out and
so gosh if I got to pay 15 to 30% or more of
Corporate tax that doesn't make any sense and so these
Wild and crazy planners will say oh well you can just take more salary and you can zero out the corporation
Well if I take 75 grand of salary now, I'm paying too much in Fica tax and I [don't] want to do that
Oh, so what they're going to do is say
Oh, you get more write-offs with the C corporation you can write off extra fringe benefits
Oh really seventy five thousand dollars worth
I don't think so in my book what your cPa isn't telling you and my tax illegal playbook
I break [down] the real numbers as to what you could write off in a C corporation
And you're nowhere near going to be seventy five thousand [dollars], so I'm still stuck trying to get this money out
How much do I take into [W2] oh?
That's right. They're gonna say you can loan yourself the money and take out a loan to shareholder
And then you don't pay the corporate tax so you take part in a W-2
Maybe [tWenty-five] Grand and then you take part and alone, but all you're doing is in
Delaying the inevitable because someday you're going to have to pay this corporate tax on
this loan when you shut down the corporation irs is going to say we want all that money pay back and
Attributed to you as a dividend so we got it
you got paid corporate tax on this all the
[time] in our
Accounting firm around the country we have people coming to us going I go I got sold the C corporation
And I've got this loan to shareholder. How do I get rid of it [you] [pay] tax on it well?
I don't want to pay tax on it. Well, then you take a salary
well
I don't want to take a big salary and pay tax you're stuck and the C corporation is this vicious cycle?
Be so careful
what watch my video on s corporations and how you can avoid the corporate tax and
a salary dividend split and avoid the loan process as well for a small business owner the s
Corporation makes so much better sense now let me give you a little tip of where the C
Corporation may play in in a limited circumstance when it comes to health care, okay now
I want to be honest and tell you where sometimes we use a C corporation and our accounting firm nine times out of [ten]
We're going to be over here
Setting up our s corporation, and then using llc's for our holdings, and we've got real estate over here
And we've got a firewall and our operations over here prop sales come in
We take a W-2 we take the rest as a K1 or you can call it dividend
But there's no corporate tax now in this situation where the s corporation is your primary entity which I love
The problem is is you still have a couple fringe benefits that are hard to write off in an s corporation?
And this is where the C corporation gets oversold now if you've got health care expenses
I would say over five thousand dollars a year and I'm not talking about health insurance
I'm talking about out-of-Pocket co-pays deductibles and all sorts of other expenses. How are you going to write those off in an s corporation?
it's very difficult now if you're married I can use an hra plan and
Backdoor it in through a spouse and and then you can have this hra
Through a spouse salary scenario you can read this in my book, and I've got other videos on that
But if I've got if I'm not married, [and] I'm single
And I've got a lot of medical my only other option is to do an hSA
So if I do a health savings account and fund it and then take the money right back out, that's cool
I got a write-off for my health care
But maybe I want to build that hSA
So where the C corp comes in and I love this strategy is if you're single?
And you have more than five thousand dollars a year in medical expenses
That's when it usually makes sense
We'll set up a C corporation with a medical benefit plan and a W-2
Hra for you the shareholder so in your s corporation you don't take a salary anymore you lease yourself
From a C corp and this is where you take your w-2 so it's kind of the C corp health reimbursement arrangement strategy
I only use it for my clients [that] are single and have more than $5,000 in medical costs
That my friends is the only other time I'd like the C corporation now
I know that was longer than two minutes and C corporations are a complex topic
But hopefully I summarized the reasons why these fortune 500 companies you see corporations
And why you as a small business owner don't want to deal with double taxation and loans to shareholders
Stay away from that now if you're in a limited situation and single with a lot of medical expenses
We might want to talk about the C corporation
But be careful
And if anybody is selling you on a c-Corporation
Get a second opinion [and] find out if they're the ones that are going to be doing your tax return year after year and look
You in the eye when you ask them how [am] I going to close down the C corporation and Avoid double tax?
the C corporation is a very unique structure, and you've got to make sure it fits your situation and
Be careful out there. [it's] a jungle
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