Forming a professional corporation is often the natural next step for people who are hoping to achieve their dreams and become their own boss in whatever field they work in. Forming a professional corporation and officially incorporating is possible for almost any profession ranging from accountants, lawyers, healthcare professionals, etc. However, each state in the U.S. has different laws and regulations regarding who can form a professional corporation and how it must be done.

At Mollaei Law, we are intimately familiar with the ins and outs of forming a professional corporation and all the advantages that come along with it. In this article, we go over all the advantages that you can expect once you form your own professional corporation. If you are interested in learning more about incorporating or are hoping to form your own professional corporation, don’t hesitate to email us at admin@mollaeilaw.com or book a consultation call at https://calendly.com/mollaeilawconsultation/professional-corp to get the process started.

Professional Corporation Advantage #1: Limited Personal Liability

As the owner of a professional corporation, you are not held personally liable for business dealings like you would if you were not incorporated. Essentially, this means that if your corporation is involved in a lawsuit where you’re being sued or your corporation goes bankrupt, your personal assets are not seized in order to pay creditors or lawsuit payouts. Additionally, if another owner of your professional corporation is found to be conducting criminal activities or negligent, you are also protected as the owner of a professional corporation.

However, just because you are the owner of a professional corporation does not mean that you will not be held liable for your own criminal activity or negligence. It’s important to also not that these limited liability protections granted to professional corporation owners are not granted to the owners of general partnerships or sole proprietors.

Professional Corporation Advantage #2: Tax Benefits

Owners of professional corporations are granted particular benefits when it comes to taxes that other conventional business owners do not have the luxury of experiencing. Below, we go over some of these tax benefits.

Incorporation Tax Deductions

Owners of professional corporations are able to deduct business expenses, similarly to other forms of businesses, like fringe benefits for employees, startup costs, operating costs, and purchases for equipment (like office equipment or medical equipment). What makes the tax deductions unique to professional corporation owners is that there are other deductions you can take advantage of that other business owners cannot. 

When you own a professional corporation, you are able to deduct your salaries and benefits for both owners and employees from your taxes. This also includes fringe benefits to owners as tax deductible. This is in contrast to other types of business owners who typically have to pay taxes on both salaries and benefits given to owners.

Professional Corporation Tax Deferral

Professional corporation owners have the ability to take advantage of different tax rates offered to businesses, like the small business corporate tax rate. Professional corporation owners are also able to withdraw cash as they feel necessary, which means they can keep cash within the corporation and defer taxes to a later time. This gives owners the ability to hold off on withdrawing funds from their corporation until they fall into a lower tax bracket.

To illustrate this, imagine you make $300,000 in a year as the owner of a professional corporation. Traditional business owners would have to take out all of the money they earned for that year, even if they only required $150,000 to cover their operating costs for the year. Professional corporation owners are able to withdraw only the money that they need for the year, in this example it was $150,000, which means they do not have to pay the higher income tax rate that they would have had to if they were required to withdraw all $300,000.

Understanding the different tax benefits of forming a professional corporation can be challenging, especially if you’ve never owned a business before and are unfamiliar with tax requirements for businesses. Mollaei Law is an incredible resource to help you navigate the ins and outs of corporation tax laws, and we are dedicated to helping you understand your benefits as a professional corporation owner. If you have any further questions about tax benefits of owning a professional corporation, please email us at admin@mollaeilaw.com or book a consultation call at https://calendly.com/mollaeilawconsultation/professional-corp to get the answers you need.

Professional Corporation Advantage #3: Earning Retention

This benefit is somewhat related to the tax deferral benefit mentioned above, because professional corporation owners are able to retain a portion of their profits to improve the functions of their business. This means that after your profits are taxed on the company level, you can retain up to $150,000 to distribute to your shareholders as dividends. This money can then be used to finance real estate purchases, purchasing equipment, office renovations, etc.

What To Do Next.

There is no denying the clear benefits and advantages to starting a professional corporation, not to mention the fact that it gives you more autonomy over your career than working for someone else. However, starting a professional corporation can be an incredibly complicated process, and if not done correctly, can leave you vulnerable to fines and even lawsuits. If you are hoping to start your own professional corporation, it’s important to make sure that you seek out experiences attorneys who can protect you at every step of the way.

At Mollaei Law, we have assisted hundreds of professionals start their own professional corporation and set them up for success. We understand the ins and outs of incorporating your business, and we can guide you in the right direction to make sure that you can take advantage of all the benefits available to you. If you are interested in starting your own professional corporation, don’t hesitate to email us at admin@mollaeilaw.com or book a consultation call at https://calendly.com/mollaeilawconsultation/professional-corp to get the process started.