C Corporation Tax Return: Everything You Need to Know
A C corporation tax return is filed annually in order to report the income of a C corporation (C corp). 3 min read
A C corporation tax return is filed annually in order to report the income of a C corporation (C corp). The IRS treats a C corp as a separate entity from its owners, also called shareholders, so the company is taxed on its income and the shareholders aren't. However, any income distributed as dividends will be taxed through the personal tax returns of the shareholders.
C corps file the company taxes on Form 1120 and will owe whatever amount is indicated on the form. Corporate taxes are paid at a different rate than personal income taxes. This rate varies from country to country and can change over the years.
Corporate tax returns are due on the 15th of the third month after your corporation's tax year end. If your company's tax year ends in January, your company tax return will be due on the 15th of April.
Any business entities that have chosen to be taxed as a C corporation with the IRS will need to file Form 1120. Companies can also choose to elect S corporation (S corp) taxation status. If they do, they'll file a different return because they don't actually pay corporate taxes. S corporations and other entities, such as LLCs with an S corp election, will fill Form 1120-S to document their income with the IRS.
How to File Corporate Taxes
Any corporation, when it is first formed, will automatically be viewed with a C corp tax status in the eye of the IRS. C corporations are known for being subject to double taxation because the company is taxed on its income and the shareholders are taxed on dividends. Basically, any money that is distributed to shareholders will be taxed twice under a C corporation.
If a company chooses S corp status, which can be done online through the IRS by submitting Form 2553, they can avoid double taxation. Shareholders in S corporations have all the business income passed through to them, and they report that income on their personal tax returns, Form 1040. S corps are not taxed as individual entities. Therefore, their income is only taxed once, through the shareholders.
Only companies that meet the following requirements may elect S corp status:
- Their shareholder count is 100 or less.
- They only offer one type of stock.
- They don't have any business entities as shareholders.
- All shareholders are individuals who are residents and citizens of the United States.
- They are a domestic corporation.
The Form 2553 for S corp election has to be filed with the IRS within two and a half months of the start of your company's tax year. Every shareholder must sign the form before it can be filed.
C corporations can benefit from the following tax deductions:
- Certain business expenses
- Employee salaries
- Employee bonuses
- Benefit plans (e.g., health, dental, retirement, etc.).
If a corporation fails to meet all tax requirements, such as yearly and quarterly payments, they'll be open to accumulating interest and underpayment or late penalties.
S corporations not only file Form 1120S to show the company income, profits, losses, and expenses, but they'll also be required to submit a Schedule K-1 form for each company shareholder. These forms account for the shareholders' part of the:
- Company income
The shareholders of a C corporation don't have to worry about a Schedule K-1 because the company income isn't passed through to the owners. C corp shareholders just need to be sure to report any collected dividends on their personal tax returns.
Certain states also require state tax returns for corporations in addition to their federal tax returns. Tax rates for state corporate taxes will vary from state to state. If your corporation is registered in multiple states, you'll need to make sure you file state taxes for the states that require them.
Forms for Corporate Taxes
C corporations must file the following forms to cover their tax requirements with the IRS or their SOS (secretary of state):
- Form 1120 (corporate tax return)
- Form 940 and 914 (employment and unemployment taxes)
- State franchise tax forms.
Franchise taxes are paid to be allowed to conduct business within a certain state. These taxes vary depending on the state.
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