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Business Entity: Massachusetts Corporation Lawyer

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Businesses that are engaged in operations that are considered “risky” or subject to frequent lawsuits are often encouraged by their legal advisors to incorporate. Moreover, the corporate structure can make it much easier to obtain investment capital and to pass the business down to the owner’s children or other successors upon death or retirement.

Are you or someone you know seeking information about starting a corporation? If so, contact our Massachusetts corporation lawyer today!

From a tax perspective, there are two options for corporations under federal income tax law:

  • C corporations are what we normally consider “regular” corporations and are subject to the corporate income tax.
  • S corporations are corporations that have filed a special election with the IRS. They are not subject to corporate income tax but are treated as similar (but not identical) to partnerships for tax purposes.

There are a number of non-tax factors that may influence your decision as to whether a corporation is the right form of business for you, and we recommend that you seek expert legal advice in setting up a corporation and writing up the articles of incorporation.

C Corporation Taxes

A regular corporation (also known as a C corporation) is taxed as a separate entity under the tax laws. Income earned by a corporation is normally taxed at the corporate level using the corporate income tax rates shown in the table below, and the corporation must file a Form 1120 each year to report this income.

After the corporate income tax is paid on the business income, any distributions made to stockholders are taxed again at the stockholders’ tax rates as dividends. Because of these two levels of tax, a regular corporation may be a less desirable form of business than the other business entities (sole proprietorships, partnerships, limited liability companies, or S corporations). This may be true even though regular corporations are taxed at lower tax rates on their first $75,000 in income.

Comparison with partnerships or sole proprietorships. Because the taxation of income to sole proprietorships and partnerships is determined by the tax bracket that applies to each individual owner, a comparison of tax rates that apply to corporations and to individuals can give you some idea of which form of business would save taxes at a particular income level.

Are you or someone you know seeking information about starting a corporation? If so, contact our Massachusetts corporation lawyer today!

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