If you\u2019re a U.S. based small business owner, you might already have heard about double taxation: when the same income is taxed once at corporate level, and then again at an individual level when the distribution of profits as dividends takes place. A significant concern for owners of C-Corporations in particular, this situation can quickly become a financial burden and impact a company\u2019s ability to grow and reinvest profits.<\/p>\n\n\n\n
However, by understanding the way in which double taxation works, and with guidance from an accounting firm in Miami<\/a>, small business owners can identify strategies for avoiding it, and become more financially efficient.<\/p>\n\n\n\n Here are some strategies you may wish to discuss with your accountant:<\/p>\n\n\n\n Selecting the right entity structure<\/u><\/strong><\/p>\n\n\n\n Undoubtedly one of the best ways to avoid double taxation, is by selecting a business structure that doesn\u2019t have to deal with the issue at all. Below are some alternative structures you may wish to consider:<\/p>\n\n\n\n Retaining earnings<\/u><\/strong><\/p>\n\n\n\n Instead of their earnings being distributed as dividends, C-Corporations can hold on to them, meaning that the corporation then pays tax on them, while the shareholders avoid having to pay personal tax on dividends. In this way, double taxation is mitigated. <\/p>\n\n\n\n But it\u2019s worth noting that this particular strategy can be trickier than it seems, and expert guidance from a tax specialist can help ensure that you\u2019re not hit by an accumulated earnings tax from the IRS.<\/p>\n\n\n\n Paying salaries to owners<\/u><\/strong><\/p>\n\n\n\n Because salaries can be deducted as a business expense – helping to reduce corporate taxable income – paying a salary to owner-employees can help you bypass double taxation. With this strategy, income is taxed only once as personal income for whoever is receiving it, but note that salaries must be deemed reasonable if IRS scrutiny is to be avoided.<\/p>\n\n\n\n Using fringe benefits<\/u><\/strong><\/p>\n\n\n\n Fringe benefits that are tax-deductible, such as retirement plans, health insurance and education assistance, can be offered to owner-employees by C-Corporations. Because they\u2019re considered deductible for the company, but not taxable income for employees, double taxation can be avoided.<\/p>\n\n\n\n Borrowing rather than distributing dividends<\/u><\/strong><\/p>\n\n\n\n Instead of receiving dividends from the company, shareholders can receive loans, helping to defer tax liability for personal income. It\u2019s important to note however, that in order to prevent the IRS reclassifying the loan as a dividend, it must be a legitimate loan that can reasonably expected to be repaid.<\/p>\n\n\n\n Reinvesting profits<\/u><\/strong><\/p>\n\n\n\n With help from Coral Gables accountants<\/a>, businesses can reinvest their profits into growth initiatives such as research and development, or expansion, to lower their taxable income at corporate level, and reducing the impact of double taxation. <\/p>\n\n\n\n Although it can be a serious challenge for small businesses, avoiding double taxation altogether, or at the very least, mitigating its effects, is possible by implementing financial strategies recommended by an experienced accountant.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" If you\u2019re a U.S. based small business owner, you might already have heard about double taxation: when the same income is taxed once at corporate level, and then again at an individual level when the distribution of profits as dividends takes place. A significant concern for owners of C-Corporations in particular, this situation can quickly become a financial burden and impact a company\u2019s ability to grow and reinvest profits. However,… Read More<\/p>\n","protected":false},"author":1,"featured_media":17737,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-17801","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"_links":{"self":[{"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/posts\/17801","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/comments?post=17801"}],"version-history":[{"count":1,"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/posts\/17801\/revisions"}],"predecessor-version":[{"id":17802,"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/posts\/17801\/revisions\/17802"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/media\/17737"}],"wp:attachment":[{"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/media?parent=17801"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/categories?post=17801"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.heyerinc.com\/blog\/wp-json\/wp\/v2\/tags?post=17801"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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