C Corporation Taxation

Understanding C Corporations (C Corps) requires delving into its key characteristics and what distinguishes it from an S Corp and other passthrough entities. At the forefront is the double taxation feature, where both the corporation and shareholders are subject to tax liabilities.

This chapter aims to dissect the various elements that contribute to the unique tax framework of C Corps—ranging from the corporate tax rate and types of dividends to special rules like Dividends Received Deduction.

In doing so, we will delve into the calculation and treatment of earnings and profits, understand the timing of income recognition, and explore the nuances of capital gains and losses. By the end of this chapter, you will be equipped with the essential knowledge to efficiently manage tax planning and compliance for C Corporations.

Now, let’s discuss C corporations (C Corps). The most unique element about a C Corp is that it experiences double taxation. The corporation itself pays tax on its income, and then the shareholders pay tax on the dividends they receive from the C Corp.

At what rate is a corporation taxed? A corporation faces a flat rate. In other words, all ordinary income and capital gains are taxed at the same rate. As of 2024, the corporate tax rate is 21%.

Types of Dividends – C Corps

There are ordinary dividends and qualified dividends. An ordinary dividend is taxed at the individual’s marginal tax rate, while a qualified dividend is taxed at the individual’s capital gains rate.