In certain cases, it may be less expensive from a tax standpoint to operate as a C corporation than as an S corporation, partnership, or sole proprietorship. This surtax phases out the benefits of the 15 percent and 25 percent rates. Taxed at a flat rate of 35 percent, a PSC is a corporation in which substantially all of its activities involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and substantially all the stock is held by employees performing such services. Deductible benefits in a corporation A corporation can deduct the cost of group-term life insurance and health benefits paid to employees. This is true even for the shareholder employees of a C corporation.
Most health benefits are nontaxable to employees.
If you are a highly compensated employee, check with your employer to determine if any health benefits will be treated as taxable income to you. Many variations of these two types of plans exist. See your KPMG tax adviser to help design a retirement plan that can satisfy your deferred compensation needs. The IRS has the power to disregard corporate status if the corporation was formed principally to provide owners with significant tax benefits not otherwise available. The IRS looks mainly at deferral of taxes but also considers expenses, deductions, credits, and exclusions.