#23 | Corporate Formalities Pt. 2 feat. Chris Housh

Practical Tax with Steve Moskowitz

In this Episode, Steve and Chris continue their talk on corporate formalities and why they are important. They discuss the importance of board meetings, piercing the corporate veil, and shareholder basis record keeping. Listen to the full episode to learn more! Episode Transcript Intro: You're listening to the Practical Tax podcast with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz LLP, a tax law firm. Steve Moskowitz: Welcome to everyone. We're here to talk to you about all the benefits that a corporation can provide to your business. I'd like to introduce my friend and longtime colleague, attorney and EA, Chris Housh. Chris, you have so much experience in this. What's the benefit of being a corporation? Chris Housh: The main benefit is that you have what's called a corporate shell. So by going and making where you're treating your business as being something separate than your own individual self and having the formalities in place, you're making it where the government and all of your creditors recognize that your personal assets are not something that can be grabbed if something happens with your corporation. Also, if something happens for you individually, your corporation, your business, is protected from your personal creditors. Now you do have to go and make sure that you follow the rules, that you actually put everything in place. But once you've done that, you've created the beneficial element of protection. You also have tax benefits, whereas, especially within current laws, as they were changed in 2018, expenses and deductions that you cannot get as an individual the corporation is allowed to deduct, as long as it's a regular ordinary expense of the business. And that includes things like the state taxes, and other expenses that you're incurring, that you would not be allowed to deduct as an individual. Steve Moskowitz: So, Chris, that sounds like really a big deal. That's asset protection, 'cause you know, there's a lot of risk in business. And a lot of people would like to go into business, but they don't wanna risk everything they worked for in a lifetime. That sounds like a tremendous deal. And how does it work for taxes? Does it make a difference of your corporation for taxes? Chris Housh: Yes, now there's two kinds of corporations. There's what's called a C corporation and a S corporation. The C is the default, but you never wanna actually be a C Corp, unless you fit into a specific category. The three times that you are forced to stay as a C corporation, is if you're gonna have a hundred or more shareholders, if you have any foreigners that are shareholders, or if you're planning on actually going and having your stock sold on the stock market, NASDAQ or the top 500, they require you to be a C corporation. The problem is a C corporation is taxed at the corporation level, and then taxed again at the shareholder level for any money that comes out of the corporation to the shareholder. So you're double taxed. You don't want that. It's more frustrating to have to go and deal with that. Instead you wanna be able to go down to the S corporation. An S corporation, again, you get to have all those deductions that are regular for a business, reduced down the profit that S corporation, as long as you don't fit into the circumstances of being required to be a C Corp, you then have it where your net profit, after all those expenses, flows down into your individual tax return, the corporation doesn't pay any tax, and then you can have your other items of income and expense deducted against what the corporate profit is. And if your corporation loses money, and you're actively working the business, those losses can actually offset your other income. So you get definite benefit out of that, while also again, protecting your assets, protecting your interests, and making where you have the safety of a corporate shell. Steve Moskowitz: Well,