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BENEFITS
• Protection of personal assets
• Separate legal entity C Corporation
• Added tax benefits
• “key man” life insurance deduction
• Medical plan deduction
• Flexibility in setting salary & bonuses
• Reimbursement policy on expenses & fringe benefits
• Minimize taxes paid via tax planning
• Unlimited life
• Can transfer ownership via stock sales
• Non taxable incorporation via IRS Section 351
• Requires transfer of business assets to corporation in exchange for stock
• 15-35% Federal Corporate Tax Rate (Files Form 1120)
• 8.84% Calif. State Income Tax Rate (Files Form 100)
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BURDENS
• Costly to incorporate
• Additional attorney fees to maintain corporate form
• Must apply for federal corporate EIN (Identification number) & state ID Number
• Requires separate corporate tax returns (state & federal)
• Payroll tax reporting for employees in corporate name
• Separate bank account in corporate name
• Fictitious business license in corporate name
• Additional record/bookkeeping
• Annual board meeting/minutes required
• Annual election of officers required
• Annual documentation of planning decisions (internal actions taken)
• Maintaining updated bylaws
• Stock ownership record keeping
• Sales Tax # in corporate name
• Sales tax reporting in corporate name
• Unlimited life
• Corporations must pay a minimum California franchise tax of $800 regardless of taxable income.
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LLC – Limited liability corporation
• Blends elements of corporation and partnership features.
• Limits liability of specific shareholders
• Pass through taxation feature at federal level to shareholders
• Pays $800 minimum Calif franchise tax regardless of income
• Fewer ongoing formalities i.e. paperwork (meeting requirements)
• Credibility (general public perception of credibility over sole proprietor)
• No restriction of the type of owners however required consent of all owners to add new members
• Not subject to $800 minimum Calif. franchise tax in year of incorporation
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S-Corporation
• Pass through taxation feature (no tax paid at federal corporate level)
• Limited to no more than 100 shareholders
• 1.5% state tax rate
• $800 Minimum Calif. franchise tax at corporate level
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