C Corporation
Authority: IRC §11
A C corporation is the default tax classification for a corporation: a fully separate taxpayer that files Form 1120 and pays federal income tax at a flat 21% rate on its own profits. When those after-tax profits are paid out as dividends, shareholders pay tax again on their personal returns, which is the "double taxation" that pushes most small businesses toward pass-through structures. C corporations still make sense in specific situations: companies reinvesting all profits at the 21% rate, startups raising venture capital (investors generally require C corporations), businesses planning for a qualified small business stock exit under Section 1202, and owners who want the widest menu of tax-free fringe benefits. There are no restrictions on the number or type of shareholders, and multiple classes of stock are allowed.
Example
A startup earns $500,000 and retains every dollar to fund growth. As a C corporation it pays $105,000 of federal tax (21%). If it instead distributed the remainder as dividends, shareholders would owe a second layer of tax at up to 23.8%, bringing the combined federal rate to roughly 39.8%.
Related terms
S Corporation
An S corporation is a corporation or an LLC that elects corporate treatment that has filed a valid election under...
Qualified Small Business Stock (QSBS)
QSBS under Section 1202 is the largest exclusion in the code for startup founders and early investors: gain on the...
Qualified Dividends
Qualified dividends are dividends from U.S. corporations and eligible foreign corporations that are taxed at the...
Stop looking terms up and start putting them to work.
Amadae runs your books, your quarterly estimates, and your tax strategy on autopilot, so concepts like this one turn into actual savings.
Book your free review