What is a C Corporation?
A C corporation is a type of business entity that is taxed separately from its owners and shareholders. By default, your business is classified as a C corporation, unless you elect to have it classified as an S corporation.
Similarities Between C Corporations and S Corporations.
C corporations share similar qualities with S corporations:
- You receive limited liability protection, meaning your personal assets are safeguarded.
- Both corporations are separate entities from you (the owner), so if you pass away or decide to forfeit your ownership, the corporation would still exist and continue.
- You can have shareholders and are required to have officers and directors.
- Both corporations are formed through state-level registration.
- Annual shareholder meetings and recorded documents of these meetings are required.
Differences Between C Corporations and S Corporations.
The differences include:
- Double taxation is the key difference. C corporations are taxed at a corporate and individual level, while S corporations are just taxed at an individual level.
- C corporations can have an infinite number of shareholders. S corporations are limited to 100 shareholders.
- C corporations are required to make quarterly estimated income tax payments, while S corporations only do it once a year.
- Unlike S corporations, owners and shareholders of C corporations do not have to be U.S. citizens or residents. C corporations can be owned by other businesses rather than individuals.
- As a C corporation, there’s no deduction for corporate losses, so shareholders cannot deduct losses on their personal tax returns.
How to File Taxes as a C Corporation?
To prep your taxes as a C corporation, you must use Form 1120 to report your business’ financial information such as income, gains, losses, deductions, and credits. If your assets surpass $10 million and you file over 250 returns each year, you must file this form online.
Here are the sections you need to fill out on Form 1120:
- Basic Information About Your C Corporation: This consists of your business’ legal name, address, Employer Identification Number (EIN), date of incorporation, and total assets.
- Corporate Income: This is your gross receipts or sales, returns and allowances, cost of goods sold, gross profit, dividends, interest, gross rents, gross royalties, and capital gains.
- Tax-Deductible Expenses: These expenses include advertising, charitable contributions, repairs and maintenance, employee benefit programs, etc. You do not need to attach documentation, but keep your records in case of an IRS audit.
- Tax, Refundable Credits, and Payments: The purpose of this section is to find out if you need to receive a tax refund or owe taxes to the IRS.
- Schedule A – Cost of Golds Sold: If your business is deducting the cost of goods from gross income, you must report this information in this section.
- Schedule C – Dividends and Special Deductions: If dividends or special deductions have been claimed, you must record this information here.
- Schedule E – Compensation of Officers: Document the compensation amounts of your corporate officers in this section.
- Schedules J and K: These sections indicate the accounting method your business uses and information that can affect your corporate tax rate.
- Schedules L, M-1 and M-2: In these sections, you need to attach your business’ balance sheet, document the reconciliation of income loss, and analyze unappropriated retained earnings.
Work with the Experts
1-800Accountant is a virtual accounting firm merging the convenience of technology with live support from real professionals, making taxes easy and personable for individuals and small businesses. Focus on growing your bottom line while our team of accountants, certified public accountants, and enrolled agents perform the heavy lifting – tax advisory and preparation, payroll, bookkeeping, and audit defense. For professional, year-round services at an affordable price, get in touch with us and schedule your consultation with America’s leading small business accounting firm.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.