by Erica Fields

Created on: October 13, 2007   Last Updated: April 08, 2008

A regular corporation, also called a C Corporation, is the only business structure in America that is taxed separately from its owners. This distinction may leave even seasoned business owners bewildered since many are used to "pass through" income which passes through the business and is reported on their individual Form 1040 every year. Incorporating your business may have many benefits including tax breaks and tax-free fringe benefits for employees and owners.

Qualifying

C corporations are most efficient for big business. When you're thinking of top money makers in America chances are their businesses are incorporated. Unlike S corporations, regular corporations don't have many loops to jump through with the IRS. Their major downfall is that they tend to be expensive to set up and there is more quarterly and annual paperwork to file with the IRS. When incorporating your business you should consult with lawyers and tax experts to ensure that your business is airtight and you have correctly reported everything with the state and federal department of taxation.

Getting Started

There are plenty of bad reasons to incorporate, especially for small businesses. There is a lot of hype about tax breaks and liability protection. The truth is many tax breaks don't outweigh the costs for small operations. And, a good insurance policy can protect your business from many lawsuits.

Example: Many small businesses think they should incorporate to write off their shareholder's health insurance and medical bills. But, the truth is any business that writes of benefits of their shareholders must give the same benefits to eligible employees. That often outweighs the write off. Also, in recent years tax law has been revised so that other businesses, like sole proprietorships, can write off the owner's health insurance in full.

Tip: Many start-up and small business may opt to become an S corporation. S corporations offer many of the same benefits like personal liability protection, but are "passed though" the owner's Form 1040. These corporations involve less paperwork, less start up cost, and more freedom for businesses just starting out.

Filing Initial Forms

Along with creating bylaws and picking a name you also have to apply for incorporation with your state. There are incorporation fees that range from $50 to $2000. Typically the state's corporate filing offices is at the governor's headquarters in the state capital.
The most important federal form a corporation must fill out is

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