A C-Corporation (or C-Corp, for short) is a legal entity with a very distinctive business structure. For federal income tax purposes, a C-Corporation is recognized as a separate taxpaying entity and can only distribute monies either through payroll or dividends.
In a corporation, prospective shareholders exchange money, property, or both, for shares of the corporation’s capital stock. With this many people involved, the tax process for corporations can be a bit complex.
When a C-Corporation is taxed, it is taxed twice – At the corporation level (currently 21%), and then to distribute any money to officers/shareholders is taxed through payroll salary and/or when dividends are distributed. The dividends are taxed at the individual level, just like getting a dividend from a share of stock owned by a public corporation trading on Wall Street.
Sounds harsh, right? It may seem that way, but there are still benefits to filing as a C-Corp for small businesses, like:
When you have or are potentially looking to take venture capital investment – these investors don't want a K1 passing through income/losses to them.
If you have a large number of investors, you don't want to be issuing a K1 tax form to them every year passing through profit/losses.
Wanting to separate personal liability from corporate liability for asset protection. Having various types of shareholders, including individuals, other companies, and foreign investors.
Great flexibility when courting new investors because ownership interest is transferred easily through stock ownership.
Freedom to have a fiscal year end.
If you are a C-Corporation owner, then you must report business income and expense activity on IRS Form 1120. If your business has a reporting period that matches up with the calendar year, your corporate tax return is due on April 15. (Note this was changed from March 15 starting with the FY2016 tax year)
…If all of this is hard to follow, don’t worry.
Let Insogna CPA’s tax experts handle your C-Corp returns and make the complexity of corporate taxes simple again.