When to Use the C-Corporation - YouTube

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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