An author I follow (as both an author and as a friend) on Facebook posted this link about corporations and taxes:

The Long Sad List of Successful Corporations that Somehow Don't Pay Taxes

I don't necessarily disagree with the idea that corporations don't pay their fair share of taxes. But I don't necessarily agree with it 100% either.

The article goes on to suggest that if you want to avoid paying taxes, you should turn yourself into a corporation.

Well, I've been a C-corp and am currently an S-corp, and I also own 50% of an LLC. It's never prevented me from paying taxes.

My C-corp RARELY paid any taxes. It usually ran at a loss, and those years that we didn't run it at a loss, we used losses from previous years to offset any income the corporation might have had in that year.

How is this fair? Well, to understand it, you have to realize that the money has to go somewhere. There are different ways to generate losses in a C-corp. One is to invest in equipment. You can take a section 179 deduction and write the entire purchase off in one year, or you can depreciate it over the "life" of the purchase.

The effect of this sort of expenditure for a C-corp is that whether it's paid for all at once, or paid for over time (via a loan), the write-off against income comes all at once (with the Section 179 deduction). If the corporation borrows money to pay for the improvement, the interest on the loan is deductible (like your home mortgage interest is, if you itemize deductions).

For example, we NEED a vacuum pump to provide dental services. One day our pump just up and quit working. So I had to buy a new one. Cost was about seven grand. I get to write off the cost of the new pump (all at once, because I didn't have any other Section 179 deductions) and I get to write off the interest on the loan I took out to pay for it (because I didn't have seven thousand dollars to pay for the pump in addition to our regular expenses).

Second, all salaries and wages are written off by the corporation, including my own salary. So at the end of the year, if I showed some profit in the corporation, I could take bonus salary. I could also take a dividend check,but I have to pay tax on the dividend AND the corporation has to pay tax on the profit. So generally I would take additional salary.

This had the effect of lowering my corporation's net income to zero or less.

This also had the effect of increasing my personal income and raising my personal taxes.

For larger corporations, it's a little different, but many of the same principles apply. They get lots of write-offs for loans and for bad debts and for CEO salaries and lots of other things that I'm sure my little one-person C-corp can't even imagine.

There are two points I want to make. The first is that even if you "become" a corporation, it doesn't mean you're not paying taxes. It does occasionally mean that you may have some write-offs available to you that aren't available to a non-business owner (many are available to sole proprietorships as well). But if a corporation makes money, someone pays taxes on that money.

The second point is that a corporation with profits generally distributes those profits to their shareholders. Those distributions are taxable as profits to the corporation, and they are again taxable to the person receiving the dividend/distribution. (To me, this seems like double taxation...) The corporation does NOT, as far as I know, get a tax write-off for distributing profits to shareholders in the form of dividends.

Someone may know more about some of this. Feel free to correct me if I haven't accurately described something. As a former C-corp owner, this is the way I understood things to work based on my own returns.