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What are the disadvantages of a Professional Corporation? 

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Category : > Professional Corporation
Posted On : Tue Feb 02nd,2010


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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Comments (1)
Kent Foltz   wrote on : Sun Feb 28th,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 ?      View Detail
Reply :
Dear Kent Foltz: Thanks for choosing for your business needs. Yes, A professional corporation is eligible for an S-Corporation and can be avoided for double taxation in most states. But in some states no. It will be considered a pass through entity but can not be avoided double taxation like in the state of California.

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Reply :
Dear Kent Foltz: In the state of California you can convert your C-Corporation to an S-corporation. There is no issue at all and It will be taxed as an S-Corporation. However, my understanding is that in the state of California you still have to pay taxes on the corporate level as well as on  personal level. But, It will will be treated as an S-Corporation and will be taxed on personal level and as per my knowledge and calculations  S-Corporation is a best structure in the state of California.
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Reply :
Dear Kent, I believe I have answered you in detail in my previous email that how it is taxed and since you are a CPA of California. You have better understanding than anyone about taxation.
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