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C-Corps pay taxes at the corporate level first. After that, individual shareholders pay taxes on dividends paid by the corporation. This opens up certain shareholders to double-taxation.

The prospect of double taxation daunting, but it is an avoidable problem. Let's examine how it works: First, a C-Corp doesn't pay taxes on every dollar it earns. Rather, C-Corps deduct their operating expenses from their revenues, reducing the business's taxable income. So if a company brought in $100,000 in revenue for a fiscal year but spent $65,000 in operating expenses, the taxable income of the business is $35,000, not $100,000.

Secondly, shareholders in a C-Corp only get taxed if dividends are distributed to them by the company. If a C-Corporation chooses not to provide dividends to shareholders and instead retain profits, double taxation is avoided since no dividends exist. In other words, only if a C-Corp makes a profit and distributes dividends to shareholders will double-taxation come into play.

All C-Corps are required to complete and return IRS Form 1120. This informs the IRS of your C-Corp's income, gains, losses, deductions, credits and income tax liability.    

If you're not sure a C-Corp is right for you, feel free to read our article about how S-Corps are taxed or the differences between S-Corps and C-Corps. You can also visit our Incorporation Learning Center for more information.

Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.


Written and Reviewed by Experts
Written and Reviewed by Experts
This article was created, edited and reviewed by trained editorial staff who specialize in translating complex legal topics into plain language.

At Rocket Lawyer, we believe legal information should be both reliable and easy to understand—so you don't need a law degree to feel informed. We follow a rigorous editorial policy to ensure every article is helpful, clear, and as accurate and up-to-date as possible.

About this page:

  • This article was written and reviewed by Rocket Lawyer editorial staff
  • This article was last reviewed or updated on Sep 29, 2023

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