Series 24: C Corporations And S Corporations

C Corporations and S Corporations

Another major distinction between corporations is the way in which they are taxed. Most large corporations (C Corporations) are taxed separately from their ownership. A growing number of smaller corporations (S Corporations) elect to pass their tax burden entirely to their shareholders.

C Corporations pay taxes separately from their owners under Subchapter C of the Internal Revenue Code. They are the primary organizational structure for large and medium-sized corporations and for publicly held companies. Business owners will benefit from a C Corporation if the business has a lower tax rate than the owners’ personal marginal tax rate. However, the C Corporation may also be subject to “double taxation.” For corporations that pay dividends, taxes are paid both at the corporate level and the personal level. Dividends are distributed from after-tax profits, and then taxed again on the shareholders’ personal income.

S