WHAT IS A C CORP? What are the Tax Responsiblities ?

HOW DOES A C CORP PAY TAXES?

A C corporation has a separate legal and tax life distinct from its shareholders. A corporation pays taxes at a corporate income tax rate and files its own corporate tax forms each year (IRS Tax Form 1120).

WHAT ARE THE RULES AND REGULATIONS REGARDING A C CORP?

To retain the corporate existence and thus the benefits of limited liability and special tax treatment,those who run the corporation must follow corporate rules. Annual meetings must be held, minutes of the meetings must be taken, and officers must be appointed. Most importantly, the corporation should issue stock to its shareholders and keep adequate capitalization on hand to cover any anticipated business debts.

CAN I AVOID DOUBLE TAXATION?

Generally, corporations are taxed on its own profits. Any profits paid out in the form of dividends are taxed again to the recipient as dividend income, at the individual shareholder’s tax rate. However,most small corporations seldom pay dividends. The employee/owners are paid salaries and fringe benefits that the corporation may deduct on their taxes. The result is that only the employee/owners end up paying any income taxes on this business income and double taxation rarely occurs.

The name “C Corporation” refers to a legal business entity chartered by the state. To have a C Corporation

you must file Articles of Incorporation and pay the required state fees and taxes with the

appropriate state agency (usually, the Secretary of State).