How C Corporation Taxation Works

A C Corporation is a distinct legal entity separate from its owners. This separation creates a unique tax environment characterized by the "Flat Rate" and distinct filing requirements.

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Form 1120

The C Corp reports income and expenses on Form 1120. It pays taxes on its own profit, unlike S Corps which file information returns.

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21% Flat Rate

Following the TCJA, C Corps pay a flat 21% federal income tax rate on taxable income, regardless of the amount of profit.

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Double Taxation

Profits are taxed at the entity level first. If distributed to shareholders as dividends, they are taxed again on the individual's return.

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Retained Earnings

C Corps can retain earnings for growth without triggering shareholder taxes, a strategic advantage over pass-throughs in growth phases.

Strategic Summary

The C Corporation is the standard structure for companies planning to go public or seek venture capital. While the double taxation aspect is often cited as a drawback, the flat 21% rate can be lower than the top individual tax brackets (which can reach 37%). This creates a planning opportunity: if money is kept inside the company for reinvestment, the C Corp structure acts as a lower-tax shelter compared to a high-income pass-through entity.

Tax Flow Simulator

Enter a profit amount to trace the path of a dollar through the C Corp tax structure.

Corporate Profit ($)

Dividend Payout Ratio (%)

Retain All (0%) Distribute All (100%)

Shareholder Tax Rate (%)

Effective Tax Rate: --%

Total tax paid divided by original profit.

Follow the Money: Where does it go?

Profit

$100,000

Corp Tax
(21%)

-$21k

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Dividend
Tax

Retained

Tax

Net Cash

$67,150

Insight: The corporation pays 21% first. The remaining cash, if distributed, is taxed again on your personal return. If you retain the earnings in the company, you delay the second layer of tax.

Entity Comparison: C Corp vs. Pass-Through

Compare the total tax burden of a C Corporation against an S Corporation or LLC based on your estimated revenue and personal tax bracket.

Scenario Builder

Annual Net Profit ($)

Owner Personal Tax Rate (%)

Applies to S-Corp/LLC flow-through income.

QBI Deduction?

Apply 20% Pass-through Deduction (if eligible)

Assumption: Comparison assumes C Corp distributes 100% of profit as dividends (worst case) to compare "cash in pocket".

Total Tax Liability Comparison

Corp Tax

Individual Tax

Feature	C Corporation	Pass-Through (S Corp/LLC)
Tax Payer	The Entity (Form 1120)	The Owners (Individual Returns)
Federal Rate	Flat 21%	10% - 37% (Progressive)
Distribution Tax	Yes (Dividends)	No (Distributions usually tax-free)
Losses	Trapped in Corp (NOLs)	Flow to owners to offset other income