What is a taxable C corp?

A C corporation or C corp (named for being in subchapter “C” of the Internal Revenue code) is an independent legal entity owned by its shareholders. A C corporation’s profit is taxed twice—as business income at the entity level and the shareholder level when distributed as dividends or realized as capital gains.

Are C Corps taxable entities?

C corporations: C corps are separately taxable entities. They file a corporate tax return (Form 1120) and pay taxes at the corporate level. They file an informational federal return (Form 1120S), but no income tax is paid at the corporate level.

How does selling a business organized as a C corporation work?

The “C” corporation has no profit on the sale and the proceeds are distributed to the seller as a dividend. There is only one level of tax to the seller. Alternatively, if we have a “stock” sale for the same price as the asset sale, there is also only one level of tax to the seller. Truly, the buyer and seller end up in the same spot either way.

What kind of taxes do you pay as a C corporation?

Businesses listed under C corporation face the possibility of double taxation, where dividend income is distributed to owners, also considered is personal income. Tax on capital gains is a serious consideration when incorporating a business. There are many benefits of filing C corporation status with state and federal governments.

Who is the owner of a C corporation?

If your company is taxed as a “C” corporation, is owned only by you and/or your spouse, and the company’s goodwill stems from your personal ability and relationships, that goodwill is not an asset of the company . . . it is yours as an individual.

How long does a C corporation have to file a tax return?

Once approved, a C corporation must file a federal tax return for at least 5 years. C corporations remain official businesses in perpetuity, unless otherwise transferred, under U.S. law.