Corporate Taxation for C Corporations
For C corps, double taxation refers to the taxation of corporate profit at two different times. The corporation itself is taxed on their corporate income at the federal corporate tax rate of 21%. When corporate earnings are passed on to shareholders, that same profit is taxed as capital gains on the shareholders’ personal tax returns at an individual tax rate of 10-37%. C corps cannot deduct earnings distributed to shareholders.
C Corporation Taxation Comparison
As of 2020, small business tax rates for C corporations is 21% whereas S corporations and sole proprietors are subject to personal income tax levels.
Taxation Policies for Business Entities
Each of these business structures is treated differently by the Internal Revenue Service (IRS) and offers different tax advantages. To become an S corporation, businesses must file Form 2553 with the IRS after filing their articles of incorporation with the relevant state.
IRS Tax Rate for C Corporations
The federal corporate tax rate is now a single flat rate of 21%, replacing the earlier rates that ranged between 15 and 35%.
Tax Compliance and Regular Filings
Corporations must file tax returns every year. The IRS taxes C corps as “separate taxpaying entities" that earn revenues, realize profits and losses, and distribute profits or dividends to shareholders.
C Corporation Taxation Process
For C corporations, double taxation refers to corporate profits being taxed twice: first at the 21% corporate tax rate, then again when distributed as capital gains to shareholders at rates of 10-37%. C corporations are separate taxable entities from owners, with income taxed before distribution to shareholders.
Tax Obligations of C Corporations
C corporations must file returns yearly. As separate entities, they earn and distribute profits taxably apart from owners. Quarterly estimated taxes apply when over $500 is expected minus credits.