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Nevada C Corporation

C Corporations - Nevada

A C-Corporation or "classic" type corporation is a separate entity from yourself for both tax and asset protection purposes. The classic phrase:

"I AM NOT THE CORPORATION AND THE CORPORATION IS NOT ME."

will guide your management of your corporation. The corporation and its employees in the execution of their work are liable only for the assets of the corporation and do not hold personal liability. The corporation will file a separate tax return US Form 1120, and employee those it deems necessary (ie you) to do business.

The IRS requires that you draw a market based and documentable salary from your corporation. You need to take the time to research the typical salaries for your industry and line of work -- and document those facts in writing or notes from telephone conversations. Websites such as hotjobs.com and monster.com can guide you to salary surveys for your industry. Why is your salary so important? Because there are five other ways to take money out of your corporation, and most all of them are far preferable to salary. In particular, your salary is subject to FICA taxes up to a cap of approximately $88k in tax year 2004 and your salary will be taxed at your personal tax rates. For many small businesses, corporate tax rates are far lower than personal tax rates:

2004 Tax Year Corporate Tax Rates:

  • $1-$50k - 15%
  • $50k+ - $75k - 25%
  • $75k - $100k - 34%

So long as your corporation does not take out any cash, the tax rates above (and higher as income increases) are all you are subject to. But cash stuck in your corporation doesn't do you much good -- does it? What are the other five ways to take cash out of your corporation?

  • Dividends - Your corporation can declare dividends. However, you will be taxed at 5% if you are in the 10% or 15% personal tax bracket, and 15% if you are in any other tax bracket. Depending on your personal tax rates, dividends can be a good way to take money out of your corporation (subject to market based salary rules).
  • Rents - Your corporation can rent space in your home or other commercial property and pay a market-based and documented rent to you. Remember, you are not the corporation, and the corporation is not you. A formal lease should be signed for these activities.
  • Loans - Some financial advisors recommend loans as one of the best ways to take money out of your corporation. Your corporation can loan you money at a market based and documented interest rate -- you must make payments on this loan. However, the loan term can be up to 5 years depending on IRS regulations (consult with your CPA). The loan proceeds are not taxable, however, the corporation will realize income on the interest that you pay on the loan.
  • Fringe Benefits - As both primary shareholder of your corporation, and primary employee, there are a number of highly favorable benefit plans that you can set up including Simple IRAs, Medical Reimbursement Plans, Cafeteria Plans, and many others. In addition, business travel including meals is deductible subject to appropriate business need.
  • Royalties - You can license intellectual property (copyrights, trademarks, patents) to your corporation for a monthly fee or one-time payment.

This site will detail the benefits available to you once you incorporate in plain language. We also provide helpful references to carefully screened providers of incorporation services. Please take the time to check out a variety of our incorporation services from the links on this site.

This information site does not provide legal or accounting advice. For legal or accounting advice, please consult a professional such as a Certified Public Accountant or Attorney.

 

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