What's the deal with double taxation?
what is it and how do I avoid it?
|
Listen to the audio
- To listen to this interview snippet, just click the play button above (twice if necessary).
|
In this audio snippet, you'll hear about:
- Does not happen as frequently as everybody thinks it does
- History of double taxation, and how it has evolved over the years
- For the average small business, double taxation should not be an issue provided they make the S Corp election or file LLC – it's mainly for C Corporations to worry about
Audio Transcript
Travis:
What
is the deal with the double taxation? What is it and how do I avoid it?
Yosef:
Double taxation does not happen as frequently as one would perceive that it does for small business.
Travis:
OK. It seems like kind of a hot topic.
Yosef:
Oh, absolutely, absolutely. Again, you have to realize that our country
is built on a core foundation of the idea that a corporation is a
distinct entity from the person who actually owns the corporation.
There are Supreme Court cases that go back 200 years to support that
notion.
So
part of the reason why there is that separation of liability was
traditionally, because the corporation paid its own tax. In some ways
it's as if it were its own citizen. It could never vote. But it would
pay its own tax. And in exchange for paying its own tax, it would have
limited liability.
Travis:
OK.
Yosef:
But what has happened though is that over the course of the year is
that double taxation was inhibiting small businesses from taking
advantage of the corporate limited liability structure. The United
States is very, very concerned about doing whatever it can to make sure
that nothing stops the development of business in the United States.
It
has both economic short–term interests involved as well as long–term
consequences if that were to change. So for the average small business,
double taxation today should not necessarily be an issue provided that
they either make the S–Corporation election or file as a limited
liability company.
Travis:
It's mainly a concern for C corporations then is what you're saying?
Yosef:
That's right. Any publicly traded company is going to be a C corporation.
Travis:
Because of the number of shareholder requirement?
Yosef:
That's right. And there is also the issue that the shares have to be
liquid enough that they can be sold to foreign investors. And a foreign
investor cannot be a shareholder of an S–Corporation.
|