Don Rosenberg, E.A." <taxoffice[at]rosieea.gccoxmail.com> wrote:

- quote -

Don - I think most of the problems are being created because
I am not using the correct terms to describe things. Yes, I
agree that it is not always the best option to take the
money out of the Corp at the end of each year as salary.

--
Vic Roberts

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"Victor Roberts" <Vic[at]Lighting-Research.com> wrote:

- quote -

Vic - We seem to be agreeing, but not communicating <g> .
Nothing you've said is incorrect. It's simply a case of one
shoe not fitting all. If the goal is to retain earnings for
future use, then reducing earnings defeats that goal.
Indeed, the unappropriated retained earnings will ultimately
have to be distributed and individual tax paid. Depending
on the individual's tax bracket, taking a large salary may
or may not be the best option.

Don Rosenberg, EA

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"Victor Roberts" <Vic[at]Lighting-Research.com> wrote:
- quote -

No. Earnings and taxable income are not the same. Earnings
are the cumulative retained profits, which is also not the
same as cumulative retained taxable income.

- quote -

So long as the salaries are reasonable, yes.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.

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Don Rosenberg, E.A." <taxoffice[at]rosieea.gccoxmail.com> wrote:
- quote -

Based on this let me make my original point. If the
Corporation has any earnings then am I correct that it pays
Corporate income taxes? And then when this income is
eventually distributed, the stockholders pay personal income
taxes (at the Dividends rate.) Correct? If so, for very
small Corporations where all the employees are also
Stockholders (not sure of the correct term here) isn't it
better to reduce earnings to zero or near zero by through
salary payments to the employee(s) before year end, thus
avoiding the double taxation?

--
Vic Roberts

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"Victor Roberts" <Vic[at]Lighting-Research.com> wrote:

- quote -

Your recollection may well be correct. And, generally, the
Corp may accumulate up to $250,000 in unappropriated
retained earnings without consequence.

Don Rosenberg, EA

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Don Rosenberg" <taxoffice[at]rosieea.gccoxmail.com> wrote:

- quote -

Thanks.

- quote -

I thought the OP wanted to accumulate earnings in his corp
in order to defer personal income taxes. That was what
prompted my post. Perhaps I was wrong :-)

--
Vic Roberts

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"Victor Roberts" <Vic[at]Lighting-Research.com> wrote:

- quote -

As long as the IRS considers the salarie(s) reasonable, no
problem. If unreasonably high salaries are paid in order to
reduce or eliminate the Corporate tax, the IRS will step in
to disallow the excessive deduction and recharacterize such
as dividends.

I believe the OP indicated that there was a need to
accumulate earnings within the Corporation. That is what
prompted my post.

Don Rosenberg, EA

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Don Rosenberg" <taxoffice[at]rosieea.gccoxmail.com> wrote:
- quote -

I certainly am not going to disagree with your comment, but
I was trying to make a different point.

Corporate income taxes on profits can be avoided if there
are no profits. If all expenses, including salaries, bring
the net profit to zero or near zero by the end of the year,
then there will be no or only a very small amount of
corporate income tax. This mode of operation is probably
only feasible for very small C-Corps, such as the one
described by the OP, where the owner(s) are also the only
employee(s) and the Corporation does not need accumulated
operating capital at the start of the next tax year. Is this
not correct and fully legal?

--
Vic Roberts

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"Victor Roberts" <Vic[at]RobertsResearchInc.com> wrote:

- quote -

Just to clarify, while C Corp. profits are taxed, it is not
necessarily true that they must be distributed to
shareholders each year. IRS may impose an accumulated
earnings tax once the retained earnings reach $250,000.
Corporations may, by resolution, establish an appropriated
retained earnings account, which will allow the Corp. to
retain profits sufficient to meet bona fide future cash
requirements. As long as such requirements are well
documented in the Corp. minutes, the IRS will generally not
consider appropriated retained earnings in its determination
of whether the excess accumulated earnings tax is to be
applied.

Don Rosenberg, EA

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omainowl[at]hotmail.com (Mohan) wrote:

- quote -

I am not an accountant or a lawyer, but two of your comments
seem incorrect.

First, if you are the owner of a C-Corp, I'm not sure you
can work for that same C-Corp as an independent contractor.

Second, I am pretty certain that you cannot accumulate funds
in the C-Corp bank account beyond the end of its tax year
without paying corporate income tax on the profits. This
results in double taxation.

The C-Corp does not provide a tax haven. Unless you pay
yourself as an employee (or contractor if allowed) the net
profits of the C-Corp will be subject to both Federal and
State income taxes at the end of the tax year, and whatever
profits are left over will be taxed again as your personal
income when you eventually withdraw them.

--
Vic Roberts

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domainowl[at]hotmail.com (Mohan) wrote:

- quote -

Short answer: There is NO tax advantage to incorporating
this kind of business in Delaware or any state other than
NJ. Corporations are subject to corporate income tax in the
states where they do business, not where they are organized.
Presumably you will be working for the corporation in NJ.
It will therefore be a NJ taxpayer regardless of where it is
incorporated.

Also, DE is not a corporate income tax haven, except for
intangible holding companies. A corporation like yours
would be subject to DE corporate income tax if it did
business there.

DE does impose a franchise tax measured by 100% of the value
of authorized (not issued) stock of a DE corporation,
regardless of whether it does any business in DE. The
minimum tax is $30/year and you could certainly set it up so
that it wouldn't be more than that, but why bother at all?
It's just another state to file reports and forms with.

Forget it.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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My wife and I who run a website and we currently reside in
NJ. I want to know if there is any tax advantage if my forms
a C-Corp in Delaware. Then I can work for the company as an
independent contractor partime to maintain the site as
needed and I can get a 1099. The money the website earns
will be left in the company account (I am not sure which
state the bank account should be opened in) after paying for
my contract work and a small distribution for my wife. We
would like to accumulate the money in the corporate account
probably till it reaches the IRS allowed limit.

In this case, is there any state tax advantages or Am I just
inviting trouble and more work?

Thanks,
Mohan

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