C Corporations
C corporations are a popular business entity type for owners in which the owners are taxed separately from the entity, with the organization subject to corporate income taxes.
Though C corporations are a simple, well-tested structure—as their liability purposes are well established and they report taxes independent from their owners—business owners still need to carefully consider various factors should a major business change or exit opportunity arise.
Navigate your C corporation tax needs and challenges with guidance from our professionals.
Key considerations for C corporations
Only C Corporations can take advantage of certain tax provisions.
Gain exclusions and loss deductions
Shareholders may exclude some or all gains from corporate stock sales when meeting certain requirements as permitted by Internal Revenue Code (IRC) Section 1202.
Gains from corporate stock sales can also be deferred if proceeds are used to make a qualified reinvestment per IRC Section 1045. Should the business fail, the shareholder of a small business corporation can deduct the loss as an ordinary loss rather than a capital loss, another potentially significant tax benefit permitted by IRC Section 1244.
Exit strategies and additional opportunities
Business owners must also assess if they will have appreciated assets in the future or if they predict the business will have significant growth and increase in value.
If so, an effective exit will likely only occur through stock sale as an asset sale could expose owners to double taxation. All assets inside the business would be taxed at the corporate tax rate and then at liquidation to the owners.
While many business owners may only seek to eventually pass the business on to the next generation without another exit, it’s key to have thorough discussions and implement a solid foundation for planning should that change or unexpected success provide different opportunities for an exit.
