What are the circumstances appropriate for a traditional corporation?

In this episode of Coffee with Carl, attorney Carl Zoellner guides you through the process of working with entities.

Today I want to talk a little bit about when it may be appropriate for you to have a traditional corporation in your entity structure. 

But first, let us talk about some basics on entities. The basics of a corporation or an LLC is to provide separation between you and your business. However, it can also be used to separate one of your business endeavors from another. 

There may be several circumstances where a traditional corporation could be appropriate or at least the corporate taxation from a general business or general working perspective. Most times, I prefer the LLC taxed as a corporation. 

Let’s talk about the difference between a traditional corporation and an LLC taxed like a corporation so we can parse those things apart. The main difference between a traditional corporation and LLC taxed is the ability to take what’s referred to as 1244 stock loss. 

This is a provision in the IR, Internal Revenue Code section 1244. It allows an individual with their own corporation that has invested money into their corporation to take a loss personally, should something unpredictable happen to your corporation and you need to shut it down. 

That is the main point, and pretty much the only difference that I can think of that would separate the two. So a couple of schools of thought here is if you’ve spent a significant amount, say on education, learning how to do real estate, learning how to stock trade, something like this, that can be seen as an equity investment. 

In that case, you may want to use a traditional corporation. This way, you can preserve that 1244 stock loss and hedge that potential benefit should the unpredictable happen. On the flip side, what you look at is, like I said, for ease of use or something that maybe is an established business. My preference is to look at things like an LLC. Taxed to basically run as easily as possible. 

The other situation you’d be looking at traditional corporations tends to be in scenarios where you plan on bringing in investors or if you plan to go public. That’s not really something we specialize in at Anderson. 

For the most part, when we start deciding between traditional and LLC taxed as we’re looking. Does the 1244 stock loss apply or should we be looking at that in order to put you in the best position? 

In the subsequent video, we’ll go over a little bit of what we look at when we look at the differences or what we’re going to analyze as far as whether it should be a C or S taxation? 

Until next time, thank you, everyone, for joining me. 

The Takeaway

As always, take advantage of our free educational content and every other Tuesday we have Toby’s Tax Tuesday, a great educational series. Our Structure Implementation Series answers your questions about how to structure your business entities to protect you and your assets. One of my favorites as well is our Infinity Investing Workshop.

Additional Resources:

• Claim your FREE Strategy Session
• Join our next Tax & Asset Protection event to learn more advanced tax minimization & entity structuring strategies
• For all things investing, check out the Infinity Investing YouTube channel
• Subscribe to our YouTube channel to make sure you never miss the latest strategies & updates

Got an idea for a future Coffee with Carl? Send it to Carl at cwc@andersonadvisors.com.