Forming a Corporation is always a smart business move, not only for the tax benefits, but to protect you from certain liability issues that can arise. California requires that a select group of professionals, such as attorneys, doctors, accountants, dentists and engineers to create a special kind of business entity known as a Professional Corporation. There are advantages to creating this kind of business instead of a sole proprietorship or general partnership, including tax benefits and liability protection.
In order to form a Professional Corporation in the State of California you must have a state license in the field that the Corporation will be handling matters in, such as dentistry or the law. A dentist cannot be a shareholder of A Professional Law Corporation just as an attorney cannot be a shareholder in A Professional Dental Corporation.
A Professional Corporation will allow the professional to operate as a corporation in California, which means that the corporation is a separate taxpayer and is distinct from its shareholders. This can significantly limit your personal liability for corporate taxes as well as provide you opportunities for tax deductions for all business related expenses.
Additionally, forming a Professional Corporation may allow you to deduct payments for health plans or disability plans. As far as liability issues, a Professional Corporation could protect shareholders against claims made against other professionals in that Corporation as well as liability against issues that may arise in the day to day activities of running a business.
If you would like more information about forming a Professional Corporation, please contact Distinct Law Group today.