The primary disadvantage to a professional corporation is the potential for "double taxation". This occurs when the 'Earnings and Profits' of a professional corporation are distributed to shareholders as 'Dividends'. These 'Earnings and Profits' were taxed first as 'Income' earned by the corporation, and again taxed as 'Income' to the shareholder when received as 'Dividends'. The potential for "double taxation" can be minimized, however, since the corporation is permitted to deduct a very broad range of business expenses
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What are the disadvantages of a Professional Corporation?
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Posted On : 2nd Feb 2010
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Kent Foltz
28th Feb 2010
Your information indicates a primary disadvantage of a prof. corp. is the potential for double taxation. However, is is my understanding a professional corporation can elect S corp. status. Accordingly, would not S corp. status negate the double taxation ? Also, if S corp. status were elected by a professional corp. that was formed and operated in CA, would that corp. be taxed as an S corp. in CA ?
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