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The IRS requires C corporations to file business income tax reports, including a record of apportionment. Income after the business expense and salary deductions is subject to tax. The net income distributed to shareholders in the form of dividends is again taxed at the individual level.

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An S corporation elects to be taxed under Subchapter S of the Internal Revenue Code. S corporation is a federal tax status, not a legal business entity. The costs to file the articles of incorporation paperwork with the state where you form your C-corp vary by state as do the fees charged by attorneys―if you use them―to handle the process for you. In general, state filing fees for articles of incorporation range from $50 to $500.

What Is a Corporation?

Despite that, they are still separate entities from the business, so these individuals generally cannot be sued or be at risk for actions taken by the company. As we mentioned, a C-corporation is the standard type of corporation—in other words, it’s an independent legal entity that exists separately from the business owners. When starting a small business, it can be advantageous to structure your company as a C-corporation. Corporate business entities have several benefits in terms of taxes, liability, and the ability to raise money.

S corps are pass-through entities, meaning profits from the business pass through to the owners’ personal income to be reported on IRS Form 1040. Limited liability companies (LLCs), limited liability partnerships (LLPs), and traditional corporations may elect S corporation status. If you aim to convert an S corp to a C corp, the IRS does not offer a standard form for shifting tax status. Instead, you can simply file a written statement with the IRS, along with a consent form signed by a majority of corporate shareholders. However, it is required to register with the Securities and Exchange Commission (SEC) upon reaching specific thresholds.

What percentage of taxes does a C Corp pay?

A qualified accountant or business attorney can help you figure out the structure friendliest to your bottom line. Certain types of business entities, such as banks and insurance companies, are not permitted to hold S status. C corporations, on the other hand, are permitted to list c crop an unlimited number of shareholders. The shareholders’ voting rights may be divided to enable the implementation of various profit-sharing structures. Such a model is well suited for companies aiming to raise capital through complex vehicles such as initial public offerings (IPOs).

Election of a board of directors is required, regardless of the corporate structure adopted. The board oversees and authorizes corporation affairs, and are not responsible for the day-to-day operations of the organization. Formalities are similar, such as the adoption of bylaws, share issuance, annual director and shareholder meetings, annual report filings, and payment of annual state fees. The answer depends on the specifics of your business and its owners, but here are some basic numbers. The current corporate income tax rate is a flat 21%, following the removal of a tiered system with the Tax Cuts and Jobs Act of 2017.