Forming a professional corporation (PC) provides you and your business with several distinct benefits.
Favorable Tax Incentives
A professional corporation is a taxpayer in and of itself, separate from any shareholders the company has. It is therefore taxed in such a way that is favorable to the business entity. The PC can deduct business expenses such as:
- Fringe benefits for employees
- Startup and operating costs
- Equipment purchases
A PC can also take advantage of additional tax deductions that other businesses can’t, like:
- Owner and employee salaries and bonuses
- Fringe benefits given to owners can be written off
By establishing a Voluntary Employees’ Beneficiary Association, the PC is able to provide health and life insurance as a tax-free benefit to employees.
Other tax deductions available to a PC include:
- Disability insurance
- Dependent Care
- Other fringe benefits provided to employees
Liability Protections for the Owners
A PC is structured in such a way that it protects an owner from the potentially negligent actions of other owners. In other words, the owners of a PC are not held liable for business obligations or the actions of another owner. This means that an owner’s personal property and assets are protected from actions of other owners, which may be criminal or negligent.
If the PC is sued or goes bankrupt, only those assets and property that belong to the business can be taken to pay any debt or creditors.
The corporate tax structure allows professional corporations to retain some of their profits for improving the business. Examples of business improvements can include:
- Building updates and renovations
- Real estate acquisitions
- Equipment purchases
In order to do this, PCs can retain up to $150,000 from distribution to shareholders as dividends, after the profits are taxed at the company level.
In a sole proprietorship or partnership, when one owner passes away or leaves the company, the business ceases to exist. Conversely, a professional corporation has perpetual existence, meaning that even if an owner passes away or leaves the company, the business can continue uninterrupted.
A professional corporation is able to offer retirement plans with higher contribution limits than an unincorporated business.