The C Corporation is a form of corporation that may be attractive to self-employed individuals and small businesses.  The C Corporation status is automatic when incorporation is chosen. An alternative is the S Corporation, which is obtained by election with the IRS through filing a Form 2553.  Income from a C Corporation is taxed to the corporation and when dividends are paid to shareholders they pay tax on their individual returns, thus causing “the double taxation” of a C Corporation.  While this may seem unattractive, the C Corporation pays taxes at 15% up to $50,000 and in some cases balancing income between the C Corporation and personal rates may make sense.

The C Corporation structure offers advantages to the self-employed individual:

• Full protection of a corporate structure
• Balancing income between the lowest corporation rate and higher personal rates
• Better fringe benefit expense deductions than other entities
• Elimination of double taxation
• No rules regarding type of shareholders
• Keep profits in the corporation

Disadvantages of a C Corporation are:

• Double taxation
• More paperwork (same with any corporation)
• Losses do not flow to the shareholders

We explain all of these points in greater detail in additional subject matter below. Also review the options of an S Corporation and a C Corporation.

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