How Is a C Corporation Taxed?

Unlike many other business entities in which the profits pass through to the owner's personal tax return (e.g., LLCs, S Corporations, etc.), the C Corporation is a completely separate taxable entity. The C Corporation pays federal taxes on the net profits (after all expenses, including salaries and bonuses) of the business by filing Form 1120 with the IRS.

The after-tax profits can be paid out to the owners (shareholders) in the form of dividends, or retained for reinvestment of the business. The first $50,000 of net income is federally taxed at a 15 percent rate, and the next $25,000 is taxed at a 25 percent rate. Different states have different rules on how they tax corporations.

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