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What Is “Phantom Income”?

“Phantom income” often comes as an unpleasant surprise for business owners who have hastily chosen a business entity with pass-through tax treatment.

To illustrate, let’s say the business has profits that are taxable to its owners and, for some reason, chooses to retain those profits in the business rather than distributing them to the owners. Result: owners will have to pay income taxes on this “phantom income” which they have not actually received. This can create obvious problems for some owners.

Since the corporate tax rate is typically lower than an individual’s tax rate and profits retained in the corporation will not be double taxed as dividends, there are frequent situations where being taxed as a corporation is preferable to pass-through tax treatment.

Before determining the business entity that’s right for you, let your tax advisor help you consider all of the many complex tax questions.

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DISCLAIMER: The information provided in this site is for general information purposes only and not legal advice.
MaxFilings is not a law firm, does not offer legal advice and is not a substitute for a law firm or an attorney.
Your use of this site is at your own risk and is subject to the terms and conditions in our  full disclaimer.

MaxFilingsMaxFilings is an online incorporation service that lets you incorporate or form an LLC in just 10 minutes, or start organizing your information until you are ready. There is no charge to store incorporation information in the secure MaxFilings system, and there is never any obligation to order.

MaxFilings incorporation fees are very affordable, and an extensive library for researching your choices is available at www.maxfilings.com/incorporation-knowledge-center.

Newly incorporated businesses also have access to online promotional services such as business cards, PR, web sites, and SEO services through partner company SEO Advantage (www.seoadvantage.com) .

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© 2008 MaxFilings.com All Rights Reserved. DISCLAIMER: MaxFilings, Inc. is a service company and does not provide legal or financial advice. The information provided on this site is for general information purposes only and not legal advice. MaxFilings is not a law firm, does not offer legal advice and is not a substitute for a law firm or an attorney. Your use of this site is at your own risk and is subject to the terms and conditions in ourÊfull disclaimer found at: www.maxfilings.com/disclaimer.html