The definition of a corporation is an organized form of business
in which the ownership of the business is held by stockholders,
or shareholders-individuals who have purchased ownership shares
in the business. The corporation is organized with a board of
directors and officers. The board of directors is elected to
make the business decisions that affect the overall business
condition and financial health of the business. Officers are
elected to oversee the day-to-day operations of the business.
The corporation exists as a legal entity in and of itself.
Today, the latest proposal is to relieve this legal entity of
its tax liability. Let\'s take a look at the different tax
structures of the corporations, and how this proposal will
affect our corporate community.
One of the greatest advantages to operating your business as a C
Corporation is concerned with the liability of the individual
shareholders. When you purchase stock in a corporation, you are
only liable to the extent of your investment; nothing further.
This is a true fact, unless there is a situation where the
corporate \veil\ is pierced. Then the liability of the
shareholders guilty of piercing the veil will be questioned.
What does this term \piercing the corporate veil\ mean? It means
you do not keep your personal finances separate from the
corporation\'s finances. It looks like the guilty shareholder is
using the corporation in personal ways, and this increases the
liability of the shareholder in question.
The great disadvantage is the \double taxation\ of profits. Any
profits shown by the corporation are taxed, and then any
dividends paid to investors, are also taxed. The corporation
receives no tax deduction for profits distributed to investors
in the form of dividends, therefore there is a situation created
for double taxation: the corporation is taxed on the profits,
and when those profits are distributed to shareholders, they are
taxed again. However, this is just a casualty of the situation:
if you wish to have the business entity treated as a separate
legal entity, it must also be treated as a separate taxable
entity.
The situation created by the formation and operation of an S
Corporation differs from that of a C Corporation, in that net
profit and net losses are flowed through to the shareholders,
via a K-1. Generally, S Corporations are formed by small
businesses or family owned situations when there is a need for
liability protection, but the business is not large enough to
support the operating conditions of a C Corporation. This is a
better tax situation for the small business owner, but does not
relieve them entirely of tax liability.
However, the current tax system imposed on corporations by the
U.S. government is at best, a biased system; for corporations
that have a net profit, taxes on those profits amount to a full
one-third. So, if you\'re doing business as a standard \C\
corporation, and you do manage to make a profit, you\'re going to
owe Uncle Sam about 30%. That\'s an amazing figure, so let\'s look
at some of the behind-the-scenes information that will help to
enlighten us as to the \why\ so much tax should be levied.
The first thing you must understand when dealing with the
corporate tax structure, is that for the most part, many large
corporations do not pay the complete 30% tax that would
typically be levied against an individual if they were in the
same situation; corporate accountants and the sheer process by
which corporations must report their income, expenses,
deductions, depreciation, dividends, and any other financial
transactions allows for huge deductions that typically offset
any tax due. This concept is a major topic of discussion today,
as we attempt to better control and regulate corporate
accountability of their finances.
The latest proposals have been to eliminate the corporate tax
altogether. This would shift the tax burden to the individuals
of this country; that is a tremendous shift from the post-war
era of the Second World War, when corporations and individuals
shared the responsibility almost equally. Thanks to the lobbying
done by corporate lobbyists over the last thirty years, we\'ve
finally reached the point of no return. The latest proposals
have come from within the halls of Congress to eliminate
corporate tax, and let the average taxpayer assume all the
responsibility.
When you factor in the ability of the wealthy and the corporate
entities of this country to hire brilliant accountants that find
loopholes in the tax system, and relieve their clients entirely
of their tax liability, you cannot believe that the current
system operates for the people, by the people, can you?
