Where Form 1120 C Equity 2023-2024

Hello everyone. Today, we are going to quickly define and compare the differences between C corporations and S corporations. AC Corp is the most common type of business entity in the United States. It is a separate legal entity set up under state law that protects owner assets from creditors' claims, also known as limited liability. AC Corp is a separate taxpayer with income and expenses taxed to the corporation and non-owners, if corporate profits are distributed to owners as dividends. Owners must pay personal income tax on the distribution, creating what is known as double taxation. Let's consider a simple example. Imagine a small business that earns a million dollars, with a cost of goods sold amounting to $150,000. Their gross profit is $450,000, and they have operating expenses of $50,000. This gives them an income from operations of $100,000. Taxed at a rate of 30%, their net income is $70,000. Assuming $50,000 is paid out as a dividend to the owner, $20,000 goes to retained earnings. The business gets taxed at the corporate level at 30% or $30,000. On the personal income tax form, the earnings of $50,000 are taxed at a rate of 28%, resulting in a personal tax payment of $14,000. After all these taxes have been paid, the after-tax earnings from all the money that flowed through the entity amount to $36,000. This calculation is done for all three years. Now, let's look at the advantages and disadvantages of C Corps. The advantages include limited liability, the ability to sell equity to raise money, and the ability to enjoy tax-deductible business expenses. The disadvantages revolve around double taxation, making it more expensive than an LLC or a partnership, increased regulations and formalities, and the absence of deduction of corporate losses for personal tax returns. Moving...