C Corporation Taxation 2025
A practical overview of the C Corp tax model: The 21% flat rate, the mechanics of double taxation, and when to choose C status over Pass-Through.
Executive Summary
The C Corporation is a distinct legal entity taxed separately from its owners. Unlike S Corps or LLCs, it pays its own taxes at a flat 21% Federal Rate. It files Form 1120 annually.
The defining feature of C Corp taxation is "Double Taxation": income is taxed once at the corporate level and again at the shareholder level when distributed as dividends. However, strategies like retained earnings and QSBS (Section 1202) can mitigate this disadvantage.
Flat Rate
The Cost
The Benefit
How It Works: Entity Level Tax
Separate Taxpayer
Income & Deductions
The corporation calculates: Revenue - Expenses = Taxable Income.
- Deductible: Officer Salaries, Rent, R&D, Marketing.
- Non-Deductible: Dividend payments to shareholders.
Filing Requirements
The corporation must file regardless of income.
- Form 1120: Due April 15 (for calendar year).
- Estimated Tax: Due quarterly (Form 1120-W worksheet).
Understanding Double Taxation
Entity Comparison
| Feature | C Corporation | Pass-Through (S Corp/LLC) |
|---|---|---|
| Tax Rate | Flat 21% | Individual Rates (10%-37%) |
| Dividends | Taxed (Double Tax) | Generally Tax-Free Distributions |
| Losses | Trapped in Corp (NOL) | Flow to Owner (Offset other income) |
| Shareholders | Unlimited (Foreign/Corp OK) | Restricted (S Corp: 100 max, US only) |
Planning Considerations
When to Choose C Corp
- Reinvestment: You plan to keep profits in the company for growth. 21% rate is lower than top individual rates.
- Raising Capital: VCs and institutional investors require C Corps.
- Exit Strategy: You aim for QSBS (Section 1202) which offers 100% tax-free gain on stock sale.
When to Avoid
- Cash Cow: You distribute all profits annually. Double taxation will hurt.
- Asset Appreciation: Real estate held in a C Corp is hard to get out without tax.
- Early Losses: You want to deduct startup losses against your W-2 income (use LLC/S Corp instead).
Interactive: Double Taxation Estimator
Compare the total effective tax rate of a C Corp vs. a Pass-Through Entity based on your profit and personal tax bracket.
Scenario Inputs
For Pass-Through comparison.