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Thus, as with a sole proprietorship, the partners derive no preferable tax treatment (aside from being able to divide the tax liability between two or more entities) by holding the business as a partnership.

C Corporations These are corporations that are established under the state law in which they are formed. C corporations may have as many share- holders as they want, whether that be one or more. They are also not limited to the type of stock they issue. Therefore, they could have several different classes each of common stock and preferred stock, one class each of common and preferred, or a variation. The share- holders of the C corporation are limited in their liability to the amount of their investment, but they can still participate in the man- agement of the business without jeopardizing this limited liability. Generally, many shareholders of C corporations are also employees.

As far as income tax goes, C corporations are responsible for their own taxes under the IRS’s code Subchapter C. They may also be respon- sible for the corporate alternative minimum tax,1 as well. C corporations are not pass-through entities, but they may be subject to the corporate double-tax. That occurs when the corporation is taxed, as well as the shareholders. However, the shareholders are only taxed on the dividends that are declared and distributed by the corporation. Usually in closely held C corporations, the business elects not to declare dividends (to the extent that it is possible), so as to avoid any double taxation. The tax strategy is to take out the profits in other, legal, ways so that there are deductions that may be taken against the business’s profits.

A C corporation’s taxable income is its gross income subject to tax, minus any allowable deductions. Corporations normally deduct their ordinary and necessary business expenses, although there are some exceptions. They may also have what is known as a net operat- ing loss. This is when the corporation’s deductions exceed its gross income. Corporations generally may carry this NOL, first back 2 years, then forward over the next 20 years.

As mentioned earlier, C corporations can determine when their business year ends. This allows you to split up when you pay your personal taxes and when the corporation pays its taxes. Also, if you

1 In the case that the C corporation is a small business corporation (usually those whose gross receipts are less than $5 million), they are exempt from the corporate AMT.

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