Startup business owners must consider the legal and tax considerations associated with selecting a particular type of business structure. This is the fourth part of a series of blogs on the tax treatment of business entities. This blog will address the tax treatment of corporations, often referred to for tax purposes as C corporations.
Like an individual person, a corporation may be taxed and held legally liable for its actions. Individual shareholders are generally not personally liable for the debts of a corporation. This is one of the primary reasons that corporations are formed. When one or more individuals form a C corporation, they create an entity with two separate types of taxpayers, the corporation, and the shareholders. As a separate tax-paying entity, a corporation files Form 1120 or 1120-A, U.S. Corporation Income Tax Return.
Harold L. Jenkins, better known as the legendary country music singer, Conway Twitty, was able to accomplish something few before and after him have accomplshed, or even attempted for that matter. That is, pay back those who lost money as a result of an enterprise he sponsored. In a surprise turn of events, Twitty was also able to deduct these repayments from his federal taxes as ordinary and necessary expenses of his business.