C Corp Tax Deductions: Everything You Need to Know
C corp tax deductions are one of the most well-known advantages of choosing to operate your small business as a corporation.3 min read
C corp tax deductions are one of the most well-known advantages of choosing to operate your small business as a corporation. However, most small business owners prefer the simpler methods of running their business, such as structuring it as a sole proprietorship, S corporation, or limited liability company (LLC).
It's generally not worth choosing the C corp structure unless a business has at least six figures' worth of profits each year. Otherwise, the extra legal fees and paperwork may be problematic. Other business structures can claim tax deductions as well; for example, sole proprietorships and partnerships use Schedule C of the owners' 1040 tax form to claim them.
Although other types of business can claim tax deductions as well, there are many that only C corporations can take advantage of.
Personnel deductions include the cost of the labor for producing goods or performing a service. It also includes paying personnel for marketing, sales, and managing the business operations. Examples include the following:
- Salaries or wages.
- Health care benefits.
- Retirement contributions to a 401(k), IRA, or another plan.
- Training expenses.
- Payments to independent contractors.
- Vacation and sick pay.
- Disability benefits.
- Education expenses, such as college tuition for employees.
Corporations can also deduct rental expenses and any expenses paid to maintain the company's place of business, including utilities, cleaning, and repairs. If you use a home office as your primary place of business, you can claim a percentage of your home expenses as well. Other business expenses that can be deducted include the following:
- Insurance premiums for fire, theft, flood, and other hazards.
- Professional and legal fees.
- Workers' compensation insurance.
- Office supplies and other materials needed to run the business.
- Fees paid to a financial institution.
- Licenses and permits.
It is important to note that if your business is structured as a corporation, and you are personally the owner of the building where the business is located, the company can lease it from you. This means you can then use the rental expense as a corporate tax deduction.
Deductions for Vehicles
Do you have a company car? If your business is structured as a corporation, some of the costs involved with owning and maintaining a vehicle can be deducted. However, they need to be expenses that are clearly specified and regularly scheduled. These include the following:
- Vehicle insurance.
- Subscriptions and memberships, such as roadside assistance.
- Technology installed in the vehicle.
You can claim these expenses on more than just a company car — other vehicles used in your business qualify as well, such as vans, pickup trucks, or buses. There are different rules and limitations, however, for automobiles versus larger vehicles such as tractor trailers and SUVs over 6,000 pounds.
Along with the costs of maintaining and insuring a vehicle, you can deduct expenses involved with its daily operation:
- Oil changes.
- Lease payments.
You can also choose to use a per-mile charge instead of keeping track of every expense throughout the year. This applies to both personal vehicles or a specific vehicle that is only used for the business. The important thing is that you need to keep accurate records because there are rules for these and other tax deductions.
For one thing, you must specify whether you own the vehicle personally or if the title is owned by the corporation. Also, you must keep track of how much use is personal and how much applies to business purposes; a mileage log is used for this purpose.
Are Startup Costs Deductible?
The costs of starting up a new business can be significant. The IRS allows you to deduct the first $5,000 of those costs on your corporate taxes. This also applies to investigating and purchasing a new business. Examples of start-up costs include the following:
- Analysis of markets or products.
- Advertising for the business in advance of its opening.
- Any wages paid to employees for training before the business launches.
- Attorney fees.
- Accountant fees.
- Expenses for suppliers or distributors.
All of the costs that are categorized as start-up expenses must be incurred prior to the date that the business officially begins operation. Even if the company transacts business before its start-up period ends, those expenses must be counted as ongoing expenses instead.
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