At a recent forum, an entrepreneur interested in starting a small, web-based e-business asked the following question:

 

If I were to start a C-Corporation would I be paying any taxes if I weren't making any profits? 

 

He went on to explain that the type of business he was starting would not involve any investors and the planned exit strategy was to operate the business with a long-term revenue model.

The entrepreneur had decided that a C-Corporation was the way to go, but didn't really know why.  After addressing the initial question regarding tax in a no-profit situation, I explained to him the following about why a C-Corporation might be a poor choice for his particular business model:

In addition to the more complex tax and accounting issues, operating a C-Corp means that loss carryback/carryforward occurs only at the corporate level. In other words, if you as an individual shareholder experience loss (which is possible for many businesses within the first year), you cannot write it off of your personal taxes. This can produce a less-than-ideal outcome.

 

If you insist upon going this route, you should at a minimum become familiar with what is called Section 1244 (Small Business) Stock, and find an attorney to structure your C-Corp in order to take advantage of this exception to the general rule (allowing $50,000 of loss deduction personally to shareholders ($100k if filing jointly)).

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