One of the advantages of being a CPA for a lot of years, is that I’ve had the opportunity to see a lot of trends. Before 1986, most businesses used either a C Corporation or a Limited Partnership (LP). The C Corporation was for business and the LP was for real estate. An LP has two types of partners: a limited partner and a general partner. Since the general partner has full liability, we would use the C Corporation for the general partner position to control liability from the LP.
So basically if you had professional help planning your business and/or real estate, you had a C Corporation somewhere in the mix.
But if you ask most people today, they’re likely to tell you that a C Corporation is a bad idea. No business owner or real estate investor would ever want one.
The biggest change occurred with the 1986 Tax Reform Act. That act changed the ability for high income investors to write off real estate losses against other income, but it also made the C Corporation less desirable for professional service companies or providers. A big group made the switch almost immediately to S Corporations and then as time went on, new tax preparers (CPAs and EAs) were trained on S Corporations. The training they got, for the most part, regarding C Corporations was very limited and often wrong.
This week we’re going to talk about some of the myths about C Corporations and some of the real traps you need to be concerned with.
There is a reason why you want to know about C Corporations right now.
The tax laws are changing again. You probably know that part already. But what you might now know is that personal tax rates are going to take a HUGE jump next year. That means S Corporations and any other flow-through entity is going to push you into higher and higher tax brackets.
There is a solution. A C Corporation. Pres. Obama’s latest budget proposal calls for a reduction in the C Corporation tax rate.
Think about that for a minute. S Corporations, LLCs and any other flow-through entity will soon have a tax INCREASE. But at the same time, C Corporations will at worst, stay the same, and at best, actually go DOWN.
Is it time to learn the truth about C Corporations? Is it time to think about putting a C Corporation in your future?