| Borrowing from retirement plan permitted |
Yes, subject to certain limitations |
No |
| Retirement plan contribution limited to earnings from business for which plan was established |
No |
Yes |
| Additional limitation on deducting retirement plan contributions used to purchase insurance |
No |
Yes |
| Limitation on forward averaging for certain distributions from retirement plan |
No |
Yes |
| Possible net operating loss from plan contributions |
Yes |
No |
| May acquire basis in retirement plan life insurance |
Yes |
No |
| Interest in retirement plan forfeitures |
Yes |
No |
| Entitled to $10,000 minimum funding for defined benefit plans |
Yes |
No |
| Entitled to qualified health plan participation |
Yes |
No |
| Entitled to qualified sickness, accident, or disability wage continuation plan participation |
Yes |
No |
| Entitled to qualified group term life insurance plan participation |
Yes |
No |
| Entitled to $5000 qualified death benefit |
Yes |
No, but similar amount available from qualified retirement plan |
| 70-percent dividend received deduction available |
Yes |
No |
| Clear separation of personal and business expenses |
Yes |
No |
| IRC §303 stock redemption treatment available |
Yes |
No |
| Unlimited liability |
No |
Yes (No for limited liability partnership) |
| Unreasonable compensation problem |
Yes |
No |
| IRS may, under some circumstances, disregard corporate entity for tax purposes |
Yes |
No |
| May be subject to double taxation |
Yes |
No |
| Subject to tax on unreasonable accumulation of earnings and profits |
Yes |
No |
| May be subject to personal holding company tax |
Yes |
No |
| Must pay Federal Unemployment Tax Act (IRC §§3301-3311) taxes |
Yes |
No |
| Must pay California unemployment taxes and workers’ compensation premiums |
Generally |
No |
| Must pay minimum California franchise tax annually |
Yes |
Depends |
| May be subject to income bunching on incorporation |
Yes |
No |
| Corporation may have to capitalize partnership retirement payment obligations it assumes |
Yes |
Not applicable |
| Higher tax cost of liquidation |
Yes |
Depends |
| Must pay social security taxes |
Yes |
Yes |
| Net operating loss limitations |
Yes |
No |
| Passive activity loss limitations |
Yes |
No |
| Expense payments to employees may be reclassified as constructive dividends |
Yes |
Not applicable |
| May be subject to additional reporting rules |
Yes |
Yes |
| Alternative minimum tax on buy-sell agreements funded by corporate-owned life insurance |
Yes |
Not applicable |
| Can zero out taxable income |
Yes, but difficult |
Yes |
| S corporation election |
Yes |
Not applicable |
| Higher legal and accounting costs |
Yes |
No |
| Professional employees must respect financial separateness of corporation |
Yes |
No (Yes for limited liability partnership) |
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