Using a C Corporation in 2013 and Beyond


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c-corpOne of the strategies we discussed in our Taxmageddon webinar was using a C Corporation. As soon as I brought up that strategy, we got deluged with questions. Here are a few that came in after the webinar was over.

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Here is a question on C Corporations that we received after the webinar.

“My question is that can I have a C-Corp to hold my appreciating assets while I have two s-corps businesses, which would lease those assets from the C-Corp? The reason being I didn’t know if the IRS would consider the C-Corp as a holding company. If the IRS did consider my C-Corp as a holding company then my other two s-corps would automatically designate to C-Corp and LLC sole member which I don’t won’t because I like the wages / distributions I received.”

Answer: First, we don’t like having a C Corporation own appreciating assets because you don’t get a capital gains special rate when you sell within a C Corp and you can deal with a double taxation issue on a liquidating dividend.

There is the additional issue with setting up a C Corp that does nothing but collect passive income such as interest, dividends, royalty and passive rental income. There is an extra tax for that.

For more information on C Corporations, you may want to check outTricks and Traps of C Corporations.



2 Comments

  1. Diane Kennedy says:

    Sorry for the delay on the response! And I’m also sorry that the answer was confusing.

    One of the challenges with a blog like this is that information stays, basically forever. And yet the tax law changes.

    In 2013, we’re looking at a lot of changes at the personal income tax level. Taxes will go up, deductions will go down and AMT is back. None of these changes are happening at a C corp level.

    We think we’re going to see a lot of people going back to the C Corp. Now the question is whether you want to have an LLC electing C Corp treatment (LLC-C) or a C corp. The LLC-C will give you better asset protection but can cost you way more in states like New York. That’s due to some antiquated publication rules for LLCs that can cost you a 4 or even 5 figures a year.

    Most of the time, though, an LLC-C is better than a C Corp because it provides better asset protection.

  2. Sue Sheldon says:

    Hi Diane!

    I’ve been searching for an answer to what I thought was a simple question, but obviously not as I keep finding conflicting answers on different sites.

    For the past 4 years my son and I have had a partnership LLC (in Wisconsin). After reading all your information online regarding corporations, I think it would be best to convert to a corp.

    My question is: Is there any differences in making the S-Corp/C-corp election to be taxed as a corp and staying as an LLC vs setting up the business as an actual corporation through the state?

    The only thing I’ve found so far is that LLCs have more asset protection than corporations (which really surprised me), otherwise I can’t find any differences.

    Thanks!

    Sue

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