C Corp Return: Everything You Need to Know
A C Corp Return is the tax return that must be filled out when filing taxes for C Corporations. 3 min read
2. C Corp Taxation
3. C Corp Tax Table
4. Benefits of C Corporations
5. Disadvantages of C Corporations
6. S Corp vs. C Corp Functionalities
C Corp Return
A C Corp Return is the tax return that must be filled out when filing taxes for C Corporations. In the U.S., C Corporations are the most common type of business structure. This is usually due to the many benefits that operating a C Corp has. A corporation is viewed as a separate and distinct entity from its owners (shareholders). Corporations pay income tax by filing a corporate tax return (Form 1120); therefore, the owners do not pay income tax for the corporation.
C Corp Taxation
Corporations pay income taxes at the corporate rate, and not the personal rate. The IRS requires that all corporations file Form 1120, which reports the company’s taxable income.
The corporation’s taxable income is the amount of profits that the company makes in any given tax year. The corporation’s taxable income is calculated by taking the gross revenue and subtracting the deductible business expenses (that are eligible to the company) along with net operating losses.
C Corporations are double-taxed – the corporation is taxed on the profits, and then the dividend distributions are taxed on the shareholders at the personal rate. Shareholders can avoid being taxed by paying themselves a salary or year-end bonus that will leave the C Corporation at a $0 earning. This is referred to as income splitting. Therefore, dividends would not be paid out to the shareholders since there would be no money left to pay out such dividends. Instead, the extra money is paid through actual income or bonuses.
However, keep in mind that even if this brings the profit of the corporation down to $0, the shareholder is still taxed on that income, just at a lower tax bracket. If a corporation is left with greater than $250,000 by year’s end, then any amount over this number will be taxed at 20%, which is an accumulated earnings tax.
C Corp Tax Table
• $0 to $50,000: 15%
• $50,001 to $75,000: 25%
• $75,001 to $100,000: 34%
• $100,001 to $335,000: 39%
• $335,001 to $10,000,000: 34%
• $10,000,001 to $15,000,000: 35%
• $15,000,001 to $18,333,333: 38%
• Greater than $18,333,333: 35%
Benefits of C Corporations
• Unlike Limited Liability Companies, S Corporations, and Partnerships, C Corporations are not pass-through entities, meaning that the profits and losses of the business are not passed through to the shareholders.
• If a C Corporation suffers a loss, then that loss can offset corporate income taxes that it paid in the prior two tax years.
• C Corps are treated as their own unique entity, meaning that the C Corp can purchase or rent property, cars, etc. The C Corp can also sue, or face a lawsuit.
• Shareholders cannot be held personally liable for the actions of the Corporation.
• C Corps provide easier ways to sell shares, as there is no limit on the amount of shares that can be sold.
• C Corps can also more easily obtain financing or investing from outside businesses and individuals.
Disadvantages of C Corporations
• C Corps have to conduct meetings and record the minutes of each meeting.
• Double taxation
S Corp vs. C Corp Functionalities
• Both types of corporations offer limited liability
• Both require that an Article of Incorporation be filed with the respective state in which the business intends on filing.
• Both types of corporations have officials, managers, and shareholders.
• While C Corps suffer from the double taxation disadvantage, S Corps as pass-through tax entities. Therefore, the S Corp does not pay corporate income tax. Rather, the profits of the S Corp pass through to the owners, who will then report the income on their personal income tax return. The rate at which each owner reports is dependent on how much money they invested into the company at the time of formation.
• S Corps can only have up to 100 investors; C Corps, on the other hand, can have an unlimited amount of investors
• S Corps cannot be owned or operated by a trust, other corporations, or any other business for that matter. However, C Corps can have another business entity as an owner or shareholder.
If you need help with learning more about the C Corp Return, or if you want to form a C Corporation, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top-5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Twillo.