Under the American Taxpayer Relief Act of 2012 (ATRA), P.L. 112-240, the maximum individual income tax rate was increased to 39.6%. It made permanent a 15% rate on qualified dividends for taxpayers in the 25% to 35% income tax brackets, and a 20% rate on qualified dividends for taxpayers in the top income tax bracket of 39.6%. Higher-income individuals also pay an additional 3.8% tax on net investment income.

S corporations, which generally are taxed at the shareholder level as passthroughs, provide no relief for this tax burden. Under certain circumstances, however, C corporations can. The benefits of incorporating as a C corporation include the following:

• Small businesses taxed as C corporations can achieve favorable treatment if taxable income is reduced to $75,000 or less. The first $50,000 is taxed at 15%, and the next $25,000 is taxed at 25%.

• C corporations offer a reduced rate of capital gains tax on the sale of qualified small business stock (QSBS), as defined in IRC Section 1202. Subject to maximum exclusion limits, owners of QSBS can exclude 50% of the gain on the sale of shares acquired after Dec. 31, 2013. Taxpayers who acquired QSBS between September 28, 2010 and December 31, 2013, can exclude 100% of the gain on that stock.

• Health insurance premiums paid by the corporation can be received tax free by the owners of a C corporation, and the corporation can fully deduct the premiums.

• A C corporation can fully deduct long-term-care and disability insurance premiums without any additional income reported to the owners.

• A nondiscriminatory medical reimbursement plan under IRC Section 105(b) allows a C corporation to cover all of the medical expenses of its employee-owners that are not paid by the company’s insurance plan.

• Fewer restrictions apply to transfers of C corporation stock, and C corporations can have more than one class of stock.

• The Jumpstart Our Business Startups (JOBS) Act of 2012, P.L. 112-106, allows the SEC to revise its rules to enable businesses to raise capital through crowdfunding. Through crowdfunding portals, C corporations can sell stakes to small investors without registering with the SEC.

• With a C corporation, shareholders are protected from personal liability and are not liable for any of the corporation’s debts.

Many advisers warn of “double taxation” within a C corporation. While this is definitely a consideration for businesses that will be looking to make distributions of earnings to the owners or that plan to ultimately sell the company via an asset sale, the impact of double taxation can be mitigated through a sale of stock, as opposed to a sale of the company’s assets.