Hidden traps

C corporations have a great new federal tax rate – 21% — and for the shareholders, C corporation stock is eligible for the lucrative exclusion on gain.  C corporations also work well to limit US taxable income for nonresidents, and they are ideal for tax-free fringe benefits for shareholders.  But several hidden traps exist for corporations in the areas of

•         Interest and dividend income
•         Passive rentals
•         Eligibility for the § 1202 exclusion
•         Accumulating income while not paying dividends
•         Interest deductions

Before you make the switch from a passthrough, understand whether your C corporation may run afoul of these tax traps.