Professional Corporation Tax Advantages
o PCs are generally created so a business can qualify as a personal service corporation (PSC). The Internal Revenue Service (IRS) will consider professional corporations as a PSC as long the business passes the function and ownership tests. The function test requires that 95 percent of the activities carried out by the business are services within the fields of health, law, accountancy, engineering, science, consulting or performing arts. The ownership test requires that the business' stock be owned by qualified people who either work or used to work for the corporation.
PSCs are taxed as a class C corporation with a flat rate of 35 percent. Salaries are considered tax deductible expenses. Professional corporations will usually pay all income as salaries to shareholders or other kinds of benefits, reducing taxable income to zero.