I am sure you have heard about the terrible double taxation on Idaho C-Corporations. However, while not being entirely wrong, it is mostly an uninformed way of thinking. Despite the potential double tax hit, this business structure can help Idaho business owners lower their overall tax burden. his traditional structure can serve as an incredibly useful tool for shifting income for tax purposes, on top of numerous tax write-offs and advantages. Many companies use the Idaho C corporation structure, regardless of size.
8 Reason to Form an Idaho C-Corporation
- Minimizing your overall tax burden.
Depending on the amount of profit your Idaho company makes and your tax bracket, an Idaho C-Corporation could help you minimize taxes. As shown in the corporate rate schedule on page 17 of Form 1120, the IRS taxes different levels of profit at different rates, sometimes much lower than individual rates
- Carrying profits and losses forward and backward.
Whereas the fiscal year must coincide with the calendar year for LLCs and S-Corporations, an Idaho C-Corporation enjoy more flexibility in determining their fiscal year. Thus, shareholders can shift income, deciding what year to pay taxes on bonuses and when to take losses.
- Accumulating funds for future expansion at a lower tax cost.
The Idaho C-Corporation allows shareholders to transition income easily and retain earnings within the company for future growth, usually at a discounted rate. Since profits from an Idaho S-Corporations appear on shareholders’ tax returns, whether they have taken a distribution or not, owners can get bumped into higher tax brackets even though they did not receive the money.
- Writing off salaries and bonuses.
Shareholders of Idaho C-Corporation can serve as salaried employees. While these salaries and bonuses fall subject to payroll taxes and Idaho Social Security and Medicare contributions, the corporation can fully deduct its share of payroll taxes. Moreover, the company can pay employees enough so that no taxable profits remain at the end of the fiscal year. Shareholders frequently use this option rather than receive dividends, which would indeed be taxed twice.
- Deducting 100% of Idaho medical premiums and other fringe benefits.
If the Idaho company makes fringe benefits equally available to all employees, not just shareholders, there are many hefty tax write-offs possible for a C-Corporation that individual employees also receive tax-free: medical reimbursement plans and premiums for health, long-term care and disability insurance.
- Writing off charitable contributions.
An Idaho C-Corporation is the only kind of corporate entity that can deduct contributions to eligible charities as a business expense. You can carry over charitable donations above the limit to the next five tax years, too.
- Carrying losses over multiple years.
This Idaho business structure can take significant capital and operating losses, and the IRS does not tend to scrutinize businesses, especially new ones, if they show losses several years running. This is especially important for start-ups that may take substantial losses in the first year but wish to carry them forward to future years.
- Enjoying fewer ownership restrictions than S corps.
Idaho S-Corporations have numerous rules limiting ownership: no more than 100 shareholders, no non-resident alien owners, and no non-individual owners. They also may not issue more than one class of stock. When entrepreneurs are seeking equity investors, these limitations will not work.