WHAT IS A C-CORPORATION?
C-Corporations, to put it simply, are corporations where the shareholders and owners are taxed separately other than the entity. C-Corporations are subject to corporate income taxation and the tax should be paid at both the corporate and personal levels.
This, in turn, means that the Corporations will have to pay the taxes on the earnings first, after which the remaining amount would be distributed among the shareholders. The individual shareholders will then have to pay personal income tax based on the amount received. This is commonly known as double taxation.
Double taxation may, of course, seem like a possible disadvantage. However, the ability that C-Corporation provides you to reinvest profits in the company at a lower corporate rate is definitely worth it. In order to avoid the double taxation, owners can pay themselves a salary or a year end bonus which leaves the C-corporation at a 0 profit.
Advantages of a C-Corporation:
Despite double taxation, C-Corporations do come with a lot of advantages, and some of them include the following.
Taxation of a C-Corporation
C-Corporation has to pay taxes in two steps commonly called as double taxation. They first pay taxes at the corporate level and then at the personal level. This is how the shareholders are opened to the world of double taxation. The prospect of double taxation is, of course, daunting; however, there are two ways in which a person would be able to avoid this situation. The owners of a C-Corporation can either pay themselves a salary, or a year end bonus that leaves the corporation at 0 profit. Nonetheless, C-Corporation doesn’t pay taxes on every dollar that it earns. Rather, C-Corporation is given the ability to deduct their operating expenses from their revenues thus reducing the business’s taxable income. Additionally, the shareholders only have to pay the taxes only if the company distributes the dividend to them.
C-Corporations use Form 1120 in order to inform the IRS about their income, losses, gains, deductions and more.
The IRS-defined tax rate for a C-Corporation is shown below:
$0 – $50,000 15%
$50,001 – $75,000 25%
$75,001 – $100,000 34%
$100,001 – $335,000 39%
$335,001 – $10,000,000 34%
$10,000,001 – $15,000,000 35%
$15,000,001 – $18,333,333 38%
Over $18,333,333 35%
Disadvantages of a C-Corporation:
QUICKLY OBTAIN AN EIN/TAX ID NUMBER FOR A C-CORPORATION
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