How is a professional service corporation taxed?
Taxation of Professional Corporations The professional corporation is taxed at a flat rate of 21%, instead of a graduated scale. The taxation rate is similar to the flat tax rate imposed on US resident corporations by the IRS.
Can a professional service corporation be an S Corp?
Personal service corporations with eligible shareholders may elect to be taxed as S corporations. If a PSC elects to become an S corporation, the remaining issues around year-end bonuses/compensation and equity structures are greatly reduced. Generally speaking, an S corporation does not pay taxes at the entity level.
Is a professional corporation an S Corp or C Corp?
Classification of Professional Corporations The IRS categorizes professional corporations as C corporations. They are considered taxpayers and must pay income taxes at the corporate rate. In some states, physicians are not allowed to form professional corporations and must instead establish professional associations.
What is the difference between a corporation and a professional corporation?
A professional corporation is one that only performs services in one, single profession. It is a specific type of corporation for professionals like doctors, lawyers, accountants, etc. The professional is able to form a corporation, but the professional remains liable for his or her own actions.
What happens to a professional corporation when the owner dies?
Generally, when the owner of the corporation dies (you) and is survived by their spouse, the shares can be transferred to a spouse or spousal trust tax-free. Without advanced planning, your corporation may lose up to 71% of its assets when you and your spouse pass away.
Who can be a shareholder in a professional corporation?
Anyone can form a regular C-corporation or S-corporation, whether they’re the sole owner of the business or have business partners. A professional corporation can also have one or more owners, but is reserved for licensed professionals.
Who can form a professional corporation?
Professional corporations or professional service corporation (abbreviated as PC or PSC) are those corporate entities for which many corporation statutes make special provision, regulating the use of the corporate form by licensed professionals such as attorneys, architects, engineers, public accountants and physicians …
What are the benefits of a professional corporation?
The main advantages of organizing as a professional corporation, as outlined above, include tax benefits and transferability of ownership. However, the flat corporate tax rate prevents shareholder/employees from retaining earnings in the professional corporation, which may limit opportunities for expansion and growth.
Can a corporation continue after death?
Perpetual Existence Unless otherwise specified in corporate bylaws or, more typically, a shareholders’ agreement or buy-sell agreement, a corporation continues beyond the personal bankruptcy, divorce, death or disablement of its shareholders.
What happens when the owner of a professional corporation dies?
What are the requirements for a personal services corporation?
The IRS requirements for a personal services corporation are (over-simplified) as the principal activity must be providing personal services, in the fields of. accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and performing art.
How is a personal service corporation determined by the IRS?
The IRS uses 2 tests to determine if a personal service corporation is a qualified personal service corporation: Substantially all — more than 95% — of the activities of the corporation is to provide the services of the employee-owners in the qualified fields.
Can a professional service corporation be a C corporation?
Moreover, because a professional service corporation is a C corporation, the professionals could also enjoy tax-free fringe benefits only available to the C corporation as well as limited liability unavailable to partnerships at that time.
How is a professional corporation ( PC ) taxed?
A professional corporation must form a corporation within a state. It is not an LLC or a partnership, and it is taxed as a corporation. A PC is taxed like other corporations at the current flat rate of 21 percent.
