|Robert Lee Riley CPA, MBA-tax
Copyright Robert Lee Riley, all rights reserved, do not duplicate
without permission of author.
...even with a corporation you are almost always liable for your
own personal mistakes.
...under California law, everyone in the chain of production is
vicariously liable. For example, you are harmed by a product you
buy in a store, the producer, the warehouse distributor, the
trucking company, and the retailer, are all liable in proportion to
their respective joint and several liabilities. Even if you have done
nothing wrong you may have to spend a small fortune on
attorneys defending yourself in court.
...you can buy insurance, but there are numerous escape
clauses that allow the insurance companies to avoid
...you avoid "piercing the corporate veil" in two ways; one,
maintain sufficient assets in the corporation to reasonably meet
the forseeable liabilities that may occur, e.g. buy insurance and
keep about $25,000 of assets in the corp. (this may vary), and,
two, do not let the corp. become your alter ego - that is, keep all
contracts, books and records, marketing materials, etc., in the
corporate name with Inc. or LLC after the corporate name.
...a corporation simply makes it difficult, cumbersome, and
expensive to sue you - it puts up road blocks. For example, a
potential plaintiff threatens to sue you. You say "fine I will just give
you the corporate stock - the corp. is yours, too bad that there is
only $25,000 in the corporation's bank account and that you will
get a K-1 at the year end showing taxable income to you, the new
owner, of $150,000 - good luck sorting that out with the IRS." Not
surpisingly the plaintiff withdraws the lawsuit.
...if you have expensive medical premiums a C Corp will allow
you to deduct them 100% against income.
...if you wish to put large amounts of income in a QRP (Qualified
Retirement Plan) a corporate plan will allow you to borrow the
money back. Thus, you are not tying the money up.
...if you have an S Corporation, you may, sometimes; to a certain
extent, avoid some payroll taxes. Pay yourself a salary, and let the
rest of the corporate income flow through to your 1040 free of
Social Security tax (this planning tool is complex; kindly contact
me for further information about what is allowable within the
limits of the law).
...corporate deductions for 50% entertainment, travel, business
development expenses, etc. are deducted 100% percent against
income - if you are an employee, those expenses go as itemized
deductions and you lose the floor amount of 2% of adjusted
...if you are contracting yourself out to employers, often they will
require you to be incorporated before they will agree to pay you.
The payor avoids payroll taxes, employee benefits, pension
costs, and human resources problems normally associated with
a traditional employee-employer relationship. For example,
computer programmers often will incorporate for this reason.
My Tax Data Organizer has additional information about
corporations including S corps., C corps and Limited Liability
...to be continued as time permits, check back.