C Corporation Taxation
Any corporation in the United States is treated as a C corporation, unless it chooses to be considered an S corporation. C corporations differ in many ways from other business entities, especially in the realm of taxation. If you are considering incorporating your business as a C corporation, it is important to know how your company and investors will be affected by the tax law of the Internal Revenue Code.
Consulting with professionals who can advise you about the different tax situations that you may face is an important part of starting your own company. To speak with a team of experienced Texas business formation experts, contact Texas Legal Entities today at 512-472-2431.
Double Taxation
Unlike other business entities, C corporations are subject to double taxation on their incomes. The corporation calculates its total revenues for the year, subtracts all business expenses, and then declares the rest as the company’s taxable income. The amount owed in taxes is then calculated based on the corporation’s tax rate. Of this total income, the corporation may choose to distribute some of this income to shareholders in the form of dividends. The money received by a shareholder as a dividend from the C corporation is taxable again, this time at the shareholder’s tax rate.
Benefits to C Corporations
Despite the disadvantage of being subjected to double taxation, there are many benefits to having a business classified as a C corporation. The personal assets of C corporation shareholders are protected from liability when the corporation cannot pay its debts, which makes it less risky to invest in a C corporation compared to other types of business entities. Additionally, in contrast to an S corporation, there is no limit to the number of people who can invest as shareholders in the company.
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As with any major decision affecting the legal standing of your company, it may be in your best interest to consult with an experienced business formation expert before incorporating your business. For sound legal advice and assistance regarding incorporation, contact Texas Legal Entities today at 512-472-2431.
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