C Corporation Taxation
Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
A C corporation is taxed as its own entity, separate from its owners, and that single fact drives everything else in this topic: the flat tax rate, the double taxation of dividends, and the two-tier treatment of dividend income depending on what kind it is.
Why does a C corp get taxed twice?
The corporation pays tax on its own income first. When it distributes that after-tax income to shareholders as a dividend, the shareholders pay tax on it again. That's double taxation, and it's the defining feature that separates a C corp from a passthrough entity like an S corp or partnership, where income is taxed once, at the owner level.
What rate does a C corp pay?
A flat 21% on all taxable income, no matter the source. Unlike individual rates, there's no bracket structure: ordinary income and capital gains are taxed at the same flat rate.
How are dividends taxed differently depending on type?
| Dividend type | Taxed at |
|---|---|
| Ordinary dividend | The shareholder's marginal (ordinary income) tax rate |
| Qualified dividend | The shareholder's capital gains rate |
Whether a dividend qualifies depends on holding-period and payer requirements set by the IRS, not on how the corporation labels it. That distinction is what makes qualified dividends meaningfully cheaper for a shareholder than ordinary ones.
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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 95 on FAR. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.