Business, Legal & Accounting Glossary
Common business slang to distinguish a corporation whose profits are taxed separately from its owners under subchapter C of the Internal Revenue Code, from an S corporation, whose profits are passed through to shareholders and taxed on their personal returns under subchapter S of the Internal Revenue Code.
A C corporation (or C corp.) is a corporation in the United States that, for Federal income tax purposes, is taxed under 26 U.S.C. § 11 and Subchapter C (26 U.S.C. § 301 et seq.) of Chapter 1 of the Internal Revenue Code. Most major companies (and many smaller companies) are treated as C corporations for Federal income tax purposes.
The income of a C corporation is taxed, whereas the income of an S corporation (with a few exceptions) is not taxed under the Federal income tax laws. The income, or loss, is applied, Pro Rata, to each Shareholder and appears on their tax return as Schedule E income/(loss).
Unlike corporations treated as S corporations, a corporation may qualify as a C corporation without regard to any limit on the number of shareholders, foreign or domestic.
According to Nolo, a prospective creator of a C corporation must:
Since corporations are state entities and the C corporation status refers to the tax treatment of these corporations by the federal government, the C corporation’s impact is mostly relegated to the tax realm. The impact of double taxation, the taxation of the corporation’s income and the separate taxation on their dividends, constitutes the impact of the C corporation treatment. C corporations are subject to this double taxation unlike S corporations and most other business entities taxed by the federal government.
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This glossary post was last updated: 22nd April, 2020 | 2 Views.