A C Corporation is the only business structure that is never a pass-through entity.
The difference between C corporations and all the others is that c corporations are completely separate C Corp tax entities. This means you don't pay the business taxes - the corporation pays its own C Corp tax. You will only pay C Corp tax on any money you take out of the business as salary or dividends.
•C corporations are taxed twice
•Tax is paid at the corporate level first.
•Dividends are taxed at the shareholder level (maximum 15%)
The business owner has to file two forms with the IRS:
•One for your personal taxes, reporting your salary or dividends from the business
•One for the business. This will be either Form 1120 or Form 1120-a, the short form.
C corporation can still be a good choice where profits are less than $75,000.
For this to work your company must earn more than you need to put in your pocket.
Instead of paying 35% on the surplus income you can pay just 15% or 25% by keeping it in your corporation.
Corporations are also subject to three additional taxes:
•Accumulated earnings C Corp tax. If your C corporation holds onto too much of its profits it incurs an accumulated earnings tax of 15%. This doesn't kick in until accumulated earnings exceed $250,000.
•Personal holding company tax. This targets C corps that earn most of their money from investments such as dividends. You don't have to concern yourself with this if you have a normal business.
•Corporate alternative minimum tax. Very few small businesses have to worry about this.
For more in-depth information you may be interested in our guide How to Choose the Most Tax Friendly Business Structure. You'll find more information on C Corp Tax and the C Corp Tax Benefits on Taxcafe.com
Article Source: http://EzineArticles.com/?expert=Nick_Braun_Ph.D.
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