C Corporation Master Guide 2025

The C Corporation is a distinct legal entity taxed separately from its owners at a flat 21% Federal Rate. The defining feature is "Double Taxation": income is taxed at the corporate level and again at the shareholder level upon distribution.

Strategies include 100% Bonus Depreciation and R&E Expensing. Beware the Corporate AMT (CAMT) trap for large entities where tax deductions don't reduce book income.

Unlike S Corps, C Corps can provide tax-free fringe benefits like health insurance to owner-employees. Compensation is deductible, mitigating double taxation, but must be "Reasonable" to avoid dividend recharacterization.

Dividends are taxable only to the extent of Earnings & Profits (E&P). The "Nimble Dividend" rule means current year earnings trigger tax even if the company has a cumulative deficit.

Corporations hoarding cash beyond $250,000 without a business reason face a 20% penalty tax. Use the Bardahl Formula to justify working capital needs.

Post-Wayfair, "Economic Nexus" means sales alone ($100k+) trigger state tax obligations. Internationally, the OBBBA raises GILTI and BEAT rates starting in 2026.

100% Tax-Free Gain on sale of qualified stock. The cap is the greater of $10 Million or 10x Basis. OBBBA 2025 introduced tiered exclusions (50%/75%) for holding periods of 3-5 years.

Asset sales trigger double taxation. Stock sales are preferred by sellers but less ideal for buyers (no basis step-up). Section 338(h)(10) bridges this gap but is rarely available for C Corps unless part of a consolidated group.

Converting S Corp to C Corp opens a Post-Termination Transition Period (PTTP) (~1 year) to distribute old tax-free earnings (AAA). Converting LLC to C Corp starts the QSBS clock.

Form 1120 is due April 15. IRS data analytics now flag consecutive losses, transfer pricing anomalies, and 1099 mismatches automatically.