Professional Corporation (P.C.)

Also known as a " personal service corporation", people used this corporation because it has traditionally offered various tax advantages over sole proprietorships. Favorable tax treatments regarding pension plans and lower corporate tax rates are the tax incentives to incorporate.

However, there are disadvantages such as double taxation applies to a corporation and taxes on a corporation's accumulated retained earnings. Moreover, the favorable liabilities protection that comes with a corporation does not available because of a personal services nature of business. An employee-owner is remained liable for his or her own fault.

It is incorporated similar to a regular corporation. A professional corporation (specifically used by licensed professionals) is treated differently than a regular corporation when it comes to prepare its own tax returns. Different rules apply to the passive loss rules and the at-risk limitations.

One big negative side of a personal service corporation is a flat 35% tax rate applies to taxable income of a "qualified personal service corporation (QPSC)". In contrast, a regular corporation is subject to a gradual income tax rates from 15%. A QPSC is defined by a corporation which involves with the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts or consulting; and its stocks are substantially (95% or more) owned by employees performing services.

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