C-Corp Tax: Understanding Taxation for Corporations

A C Corporation (C-Corp) is a separate legal entity from its shareholders, meaning it pays taxes independently. Every year, businesses structured as C-Corps must file Form 1120 with the IRS to report income, deductions, and credits.

Unlike personal income tax rates, corporate tax brackets don’t adjust for inflation unless Congress passes new tax laws. After paying corporate taxes, any profits distributed to shareholders as dividends are taxed again at the individual level. Additionally, wages paid to shareholder-employees are subject to individual income tax, creating a double taxation scenario.

However, with smart tax planning, businesses can reduce the impact of double taxation while leveraging corporate tax benefits. Given that the highest individual tax rate now exceeds the corporate rate, C-Corps can retain earnings, making them a strategic choice for some businesses.

Retaining Earnings & Tax Benefits

One advantage of a C-Corp is its ability to retain earnings without immediately passing them to shareholders. Unlike sole proprietorships, partnerships, and S-Corps—where all earnings are taxed as personal income—C-Corps only tax profits when distributed as dividends.

That said, corporations can’t stockpile unlimited earnings forever. Most businesses can retain up to $250,000 tax-free, provided the accumulation is for a legitimate business need.

At iTax Filer, we help businesses navigate C-Corp taxation, ensuring compliance while maximizing tax advantages. Whether you’re forming a new corporation or optimizing your tax strategy, our experts are here to guide you every step of the way! 🚀