As tax season approaches, your corporation has a lot to juggle in order to file its IRS 1120 form correctly:
payroll records, sales tax, and a history of each shareholders’ interactions with your financial records. It can be a lot to handle by April 15th, but the experts at Insogna CPA are here to help.
What is a C Corporation?
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.
How does a C Corp get taxed?
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.
How should a C-Corp file?
If you own a C-Corporation, you must report your business income and expense activity on IRS Form 1120. If you have a calendar year reporting period, your corporate tax return is due on April 15th (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.