C CORP TAXES

Ted recently quit his day job to drive full time for Lyft. Ted knew he wanted to incorporate so he could limit his personal liability should something happen on the road. A friend suggested that Ted start a C corp to mitigate his personal liability. While this is true, Ted could be putting himself in an unfavorable tax position; His corporation would need to pay tax on all of his rideshare earnings, he would need to pay tax again on any dividends paid, and he would need to pay personal income tax on his wages from the business. If Ted were instead to do business as a LLC or S corp, he could still enjoy the benefits of limited liability but the earnings from his business would only be taxed once.

Ingrid is an independent real estate agent who formed her business as a C corp. Unfortunately, she found that it was a lot of extra work for her to draft corporate bylaws, organize and document an annual meeting, and file special state reports and a separate tax return. Sine Ingrid's business is so small, she may have been better off organizing as a single member LLC.

Patricia is an independent artist who sells animal sculptures on Etsy. Her company is organized as a C corp. In her first year of business she generated a $15,000 loss. Because C corps are not pass through entities (like LLCs or S corps), Patricia would not be able to offset her individual tax liability with any portion of the $15,000 loss. Rather, she would need to carry the loss forward to future years where she could use it to offset future corporate profits.

Prabhu is an independent engineer who successfully created a self-driving car. Prabhu organized his business as a C corp. Recently, business slowed due to fierce competition and Prabhu was unable to pay some of the vendors who supply his corporation. The vendors subsequently sued his company. Fortunately, since Prabhu organized using a business structure that limits his personal liability, likely all he stands to lose from the lawsuit is his investment in the business, not his home or any of his personal assets, which would be fair game if Prabhu was a sole proprietor.