C Corporation

A C Corporation is a business which is a completely separate entity from its owners, unlike a partnership, so it must file its own taxes and be responsible for its dealings. It can have unlimited numbers of shareholders, and those shareholders can be any kind of legal entity. Additionally, since corporations are taxed on their income and shareholders have to claim dividends as taxable income themselves, shareholders of a “C” corporation are double taxed on their dividend income.

Advantages

  • Low tax rate on the first $75,000 of business income
  • C corporations can sell stock or shares (common or preferred) with no limit to the number of shareholders
  • Better fringe benefits for owner-employees, such as the opportunity to use a medical reimbursement plan

Disadvantages

  • Double taxation: The profits of the corporation are taxed as they are earned at a corporate level, while shareholder are also taxed when the profit is distributed out as dividends
  • Tax traps for accumulated earnings and personal holding companies
  • Annual income in excess of $75,000 is taxed at a high corporate income tax rate

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