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The C corp that will get you double taxed

Article

With changes in the tax code over the years, S corporation status is more attractive than C corporations for veterinary hospitals these days. Here's why.

Q. I incorporated my veterinary practice as a C corporation years ago. Do I need to change it?

The short answer is, yes.

Twenty years ago, there were some tax advantages to organizing your veterinary practice as a C corporation, particularly for health insurance and employee benefits. And when I researched C corporations recently, I found a ton of websites still saying that this structure is a great option for small businesses.

But I personally don't see it for the vast majority of veterinary hospitals.

The big issue is, C corporation profits are taxed twice: once at the corporate level and again when they're distributed to the owner. Before a C corporation practice is sold, the practice owners usually can manage their compensation so there's little taxable income at the corporate level. That's a big bonus to the owner. But when you sell the assets of the practice-and that's how a lot of 100% practice sales happen-it's not so easy to avoid that double taxation.

So, if you're still a C corporation, talk to your accountant about all of the ramifications. Do it soon; you can convert to an S corporation but there is a five-year waiting period before you can avoid all of the double taxation.

 

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