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Tax and Tax Information - Income Tax

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Tax and Tax Information * Income Tax

How to Deal with C Corporation Tax   
Nick Braun EA PhD

<p>
The difference between C corporations and all the other entities is that C corps pay their own tax â€" they are not pass-through entities. <p>
The corporation pays corporate income tax on its profits at the following rates:<p>
<b>Taxable income</b><p>
$ %
0 - 50,000 15<p>
50,000 - 75,000 25<p>
75,000 - 100,000 34<p>
100,000 - 335,000 39<p>
335,000 - 10 million 34
<p>
If the owners then want to get their hands on the profits they have to pay themselves a dividend. Dividends are currently taxed at a maximum rate of 15%.<p>
So C corporations are potentially taxed twice:<p>
• Once at the corporate level, and
• Once at the shareholder level when dividends are paid.<p>
Clearly this is unattractive and undesirable for most small business owners.<p>
<b>How to Avoid Double Taxation - S Corp Vs C Corp</b><p>
Many small C corporations avoid this double tax problem by simply paying out all their profits as salaries and bonuses.<p>
These amounts are tax deductible so the corporation ends up with no profits and doesn’t have to pay any corporate income tax.<p>
The owners then have to pay income tax at individual rates on their salaries, much like any other business owner.<p>
To avoid paying dividends which are subject to double taxation, another strategy is to pay shareholders consulting fees. Of course, you have to make sure there is some genuine consulting. These consulting fees will, however, be subject to social security and Medicare taxes.<p>
<b>Income Splitting - S vs C Corp</b><p>
Using a C corporation can actually save you tax if you need to keep money in the business to help it grow, for example if you need money to buy inventory or fund a marketing campaign.<p>
This is called income splitting because instead of having all the income taxed in your hands at rates of up to 35% you can keep some in the corporation where it will be taxed at rates as low as 15%.<p>
The first $50,000 of profits you keep in the corporation will be taxed at just 15% and the next $25,000 will be taxed at just 25%. <p>
For this strategy to work your company must, of course, be earning surplus profits that you can afford to keep in the business instead of paying out for your personal living expenses.

<b>Example</b>
Larry’s internet business, Larry Inc, has $75,000 of surplus profits that he would like to keep in the business to help it expand. Federal corporate tax will be as follows:<p>
$
$50,000 x 15% 7,500
$25,000 x 25% 6,250
<b>Total tax 13,750</b><p>
If Larry was using a pass-through entity his marginal income tax rate on these surplus profits could be between 28% and 35%, meaning he would have to pay between $21,000 and $26,250.<p>
By using a C corporation Larry has saved himself between $7,250 and $12,500 in tax!<p>
And that’s not the only tax saving. Earnings retained in the business are also not subject to the FICA tax.<p>
In summary, by keeping up to $75,000 of profits in the corporation and paying the rest out as salaries and bonuses, most people can save some tax.

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Let Bush Tax Cuts End, Economists Say (Fox News)
NABE economist said Congress should let the Bush tax cuts expire.

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NARUC Asks For Clarification On Broadband Grant Tax Status (Broadcasting And Cable)
Association says money should be tax...

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What Other Authors say about Taxes

Utilizing Tax Tips by Carl LaFresnaye

Tax tips can be found from a variety of different sources, but individuals must be careful to determine whether those sources are professional and legitimate or if they are from average people who are...

Deciding when to File a Tax Return? by Keith Hoyng

April 15th - "The Day of Reckoning"! Every year, millions of Americans get ready to pay taxes to Uncle Sam, or get ready to collect a tax refund from Uncle Sam; when did this become the great day that...

Income Tax Booklet- Useful Roadmap For Tax Savings by deepak kulkarni

<p>Now consider your credit card. Most credit cards carry an interest rate of anywhere from twelve to twenty-one percent. If you owe taxes that you can't pay, you probably have a higher interest...

Reduce Your Taxes by Martin Lukac

When it comes to taxes, we all want to reduce the amount we have to pay in. There are three basic ways to minimize your taxes: reduce your income, increase your deductions and take advantage of tax credits.Your...

Are Foreclosure Taxable by

The Internal Revenue Service unveiled a special new section for people who have lost their homes due to foreclosure. The IRS also reassured homeowners that, although mortgage workouts and foreclosures...

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<p>In fact many of these people had no intention of retiring and used these generous packages to move into second careers. They did not retire at all until much later, in their sixties. Nowadays,...

The Principles On Paying Tax by Teguh Budimulia

Why Tax Loop Holes Must ExistA long long time a go, in a country far far away, in China to be exact, there was a hunter that put nets in 4 sides of the forest. The hunter wanted to catch all animals. Then...

Unclaimed Tax Refunds: How To Claim Yours by Gray Rollins

When a taxpayer owes money on their taxes they need to pay the amount owed before the traditional April 15th deadline. If the amount owed on taxes is not paid before the deadline, then federal and state...

IRS Reports Tax Gap of $300 Billion by Richard A. Chapo

The Internal Revenue Service is reporting that the difference between what U.S. taxpayers owe and actually pay on time totals more than $300 billion a year. Studying over 46,000 tax returns for individuals...

New for 2006, the Roth 401k Plan by Alan D Campbell

One of the new tax strategies available in 2006 is the Roth 401k. A taxpayer may place up to $15,000 ($20,000 if age 50 or older) in a Roth 401k instead of a regular 401k plan in 2006. The 401k plan needs...

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How And Where To Find Valuable Tax Information by Gray Rollins

Taxpayers have two options when filing a federal or state income tax return. Taxpayers can have their tax returns professionally prepared or they can prepare their own taxes. Whatever tax preparation option...

Tax preparation: Should You File Or Pay A Professional? by Kenneth L Myers

You do not have to be a professional to do your taxes however if you have a complicated income structure or are just not quite sure, there are services to help you prepare taxes for yourself or your business....

Top 7 Ways to Minimize Your Income Taxes by Kristine A. McKinley

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Index of Articles about Taxes

What Other Authors say about Taxes

Utilizing Tax Tips by Carl LaFresnaye

Tax tips can be found from a variety of different sources, but individuals must be careful to determine whether those sources are professional and legitimate or if they are from average people who are...

Deciding when to File a Tax Return? by Keith Hoyng

April 15th - "The Day of Reckoning"! Every year, millions of Americans get ready to pay taxes to Uncle Sam, or get ready to collect a tax refund from Uncle Sam; when did this become the great day that...

Income Tax Booklet- Useful Roadmap For Tax Savings by deepak kulkarni

<p>Now consider your credit card. Most credit cards carry an interest rate of anywhere from twelve to twenty-one percent. If you owe taxes that you can't pay, you probably have a higher interest...

Reduce Your Taxes by Martin Lukac

When it comes to taxes, we all want to reduce the amount we have to pay in. There are three basic ways to minimize your taxes: reduce your income, increase your deductions and take advantage of tax credits.Your...

Are Foreclosure Taxable by

The Internal Revenue Service unveiled a special new section for people who have lost their homes due to foreclosure. The IRS also reassured homeowners that, although mortgage workouts and foreclosures...

How To Prepare Your Income Tax Return by Don Kransteuber

The first step in your income tax preparation is to work out your total income. A person's total income includes many kinds of receipts such as wages, interest, alimony, lottery winnings and many more....

How to Use an Early Retirement Plan to Secure Your Future by Scott Taylor

<p>In fact many of these people had no intention of retiring and used these generous packages to move into second careers. They did not retire at all until much later, in their sixties. Nowadays,...

The Principles On Paying Tax by Teguh Budimulia

Why Tax Loop Holes Must ExistA long long time a go, in a country far far away, in China to be exact, there was a hunter that put nets in 4 sides of the forest. The hunter wanted to catch all animals. Then...

Unclaimed Tax Refunds: How To Claim Yours by Gray Rollins

When a taxpayer owes money on their taxes they need to pay the amount owed before the traditional April 15th deadline. If the amount owed on taxes is not paid before the deadline, then federal and state...

IRS Reports Tax Gap of $300 Billion by Richard A. Chapo

The Internal Revenue Service is reporting that the difference between what U.S. taxpayers owe and actually pay on time totals more than $300 billion a year. Studying over 46,000 tax returns for individuals...

New for 2006, the Roth 401k Plan by Alan D Campbell

One of the new tax strategies available in 2006 is the Roth 401k. A taxpayer may place up to $15,000 ($20,000 if age 50 or older) in a Roth 401k instead of a regular 401k plan in 2006. The 401k plan needs...

Gambling Income and Expenses - Taxes by Richard A. Chapo

Hit a big one? With more and more gambling establishments, keep in mind the IRS requires people to report all gambling winnings as income on their tax return.Gambling income includes, but is not limited...

How And Where To Find Valuable Tax Information by Gray Rollins

Taxpayers have two options when filing a federal or state income tax return. Taxpayers can have their tax returns professionally prepared or they can prepare their own taxes. Whatever tax preparation option...

Tax preparation: Should You File Or Pay A Professional? by Kenneth L Myers

You do not have to be a professional to do your taxes however if you have a complicated income structure or are just not quite sure, there are services to help you prepare taxes for yourself or your business....

Top 7 Ways to Minimize Your Income Taxes by Kristine A. McKinley

Are you paying too much in income taxes? Are you getting all the credits and deductions you are entitled to? Here are 7 tips to help you minimize taxes and keep more in your pocket:1. Participate in company...