Employees report compensation and dividends as personal income. In practice, you can pay yourself a sufficiently large salary to offset any corporate profits. Furthermore, you can care- fully allocate profits as retained earnings, shareholder dividends and salaries to minimize your tax bite. Profits kept in the business get taxed at lower corporate rates. Dividends paid to share holders get taxed twice.
Losses can offset past or future profitable years.
But shareholders can't claim those losses on their personal returns as they can with SPs, LLCs and partnerships. As a general rule, only if the company doesn't pay employment taxes. Shareholders report any income from the sale of their stock, paying the capital gains rate. Start-up fees, record keeping costs, required board meetings, and other regulatory hassles make corporations the most expensive way to do business. But, everything from health care to disability to retirement planning is legally deductible.