A personal service corporation (PSC) is a type of corporation that is preferred by corporate taxpayers, professionals, and small business owners in the United States. Its primary benefit is that it allows a tax deduction for the cost of personal services, such as doctor’s fees, attorney’s fees or engineering fees.

The primary differences between a PSC and a C Corp are that a PSC is not subject to double taxation, allowing taxed income to be passed on to the shareholders without being hit with a second corporate income tax. Additionally, their tax rates are much lower than those of a regular corporation.

PSCs are popular among professionals, such as surgeons, attorneys, architects, and engineers, who can use their incomes for personal use, rather than for the benefit of the corporation. This means that the profits are often exempt from corporate income taxes. Furthermore, these types of corporations are often exempt from payroll taxes, meaning that the personal services provided by these professionals remain untaxed.

PSCs also provide beneficial tax treatment to their shareholders. Under the Internal Revenue Code, they are treated as pass-through entities. This means that their revenues and profits are only taxed once, at the individual level, rather than the double taxes incurred by a C Corp.

In order to qualify as a PSC, a corporation must meet certain criteria. It must be incorporated by the owner, who must own more than 10% of the total number of shares issued by the company. It may also include other owners, but the primary owner must have the majority controlling interest in order for the company to be treated as a PSC. Additionally, the activities of the PSC must relate to a personal service, and more than 80% of its gross receipts must be from the employer-employee services that are provided.

Overall, a personal service corporation is an appealing and legally compliant option for professionals and small business owners who are looking for tax advantages. It allows professionals to keep their money from the services they provide without incurring the double taxation associated with a regular corporation. In addition, PSCs often provide tax advantages to their shareholders, as well. By meeting certain criteria, they are able to benefit from reduced taxes on their profits and income.