In this episode of Coffee with Carl, attorney Carl Zoellner talks about the tax advantages of using a corporation in your overall business entity structure.
Updated July 23, 2020
Why would you use a corporation with your LLC? What are the benefits? This is a common question I receive from clients. The answer is simple: corporations (whether C-corps or S-corps) have a different tax code than individuals.
We’re all familiar with the individual tax code: take what you earn, subtract taxes, then spend what’s left. For corporations, however, the tax code is flipped: take what you earn, subtract spending, then pay tax on what’s left.
Individuals: earn – tax = spendable income
Corporations: earn – spend = taxable income
In addition to the differences in tax codes, there is another major tax benefit only for corporations: deductions. Corporations can deduct qualifying business expenses, like cable and Internet. What’s more, if the corporation’s bylaws are drafted with the right language, the corporation can reimburse you for medical expenses beginning with the first dollar. On top of that, having a corporation in your business entity structure allows you to use Section 280A, which allows you to rent your personal residence to your corporation for up to 14 days a year. This creates tax-free income for you AND a deduction to your corporation.
Watch as Carl breaks down the advantages of including a corporation in your overall business entity structure. He covers the basic difference between the corporate and individual tax codes and explains the tax benefits corporations have that other entities (like LLCs) don’t.
If you have any questions, comments, or feedback about this episode, let us know at cwc@andersonadvisors.com.
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.
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