What is a C Corporation?

When it comes to selecting a business entity, C corporations (C corps) are a popular choice. It’s the most common type of corporation in the U.S. because if offers the opportunity for big tax savings and growth through the sale of stocks. The profits earned by a C corp are taxed separately from its owners.

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Tax Benefits of Forming a C Corporation

The relatively new corporate tax rate translates to huge tax savings for C corps but there are many other reasons entrepreneurs are choosing this type of structure. It can be a vehicle for shifting income for tax purposes and includes numerous write-offs for business expenses.

Tax Deductions Please

The recent change to the corporate tax rate coupled with many other tax breaks including deducting medical premiums and fringe benefits, the ability to shift income, write-offs for charitable contributions, and others make C corps more attractive than ever.

Minimize Taxes by Shifting Income

Unlike LLCs and S corps, the fiscal year of a C corp does not need to coincide with the calendar year. So business owners can opt to pay taxes on bonuses in a different year and plan on when to take losses in order to dramatically reduce tax bills. These companies can also take losses over multiple years.

Write-offs on Salaries and Bonuses

Instead of receiving dividends which can be taxes twice, shareholders can be paid as salaried employees and the corporation can fully deduct its share of payroll taxes. The company can also pay enough to employees so that minimal taxable income is left at the end of the year.

The Sky’s the Limit for Growth

More shareholders equal more investors and deep pockets ready to buy stock. The sale of stock provides unlimited growth potential for C corps. And, if the small business eventually grows into one that’s large enough to attract public funding on a national stock exchange, it must be a C corp.

Corporate Tax Rate Reduced

The 2018 tax reform changes have made C corps more attractive than ever to small business owners. With a corporate tax rate of 21 percent combined with a wide array of deductions and write-offs, small businesses are presented with a huge opportunity for tax savings.

Tax Benefits for Business Owners

Profits don’t pass through the individual business owners so individuals do not need to fear inflating their income and getting bumped into a higher tax bracket. Profits stay in the company but are taxed at the new lower corporate tax rate.

Disadvantages of a C Corporation

Double Taxation

Paying taxes once is bad enough but C corps have to pay twice. First, they pay taxes on profits when corporate income is distrusted to shareholders. Then, when the shareholders receive a dividend, they pay again on their personal tax returns. So the corporation itself is not paying double tax but potential business owners can view it as being hit twice by the IRS. Structuring your business as an S corp avoids double taxation.


Forming a C corp involves some hassles and can become time-consuming because of the long list of legal requirements. To incorporate this way, you need to have a board of directors and conduct regular shareholder meetings at certain intervals where the minutes must be recorded.

Still not sure if a C Corp is right for you?

Request a consultation online now to discuss the pros and cons with a tax professional at Stanford Entity Management LLC.

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