C Corp taxes: rates and requirements guide
7 min read
January 02, 2024 • Block Advisors
Are you wondering about the ins and outs of C Corp taxes? In this post, we’ll help you understand this topic and break down what you need to know as a small business owner. First, we’ll give a brief refresher on what a C Corporation is. Then, keep reading to dive into the state and federal requirements, c corp tax rates, deadlines, forms and more.
What is a C corporation?
A C Corporation is a tax classification. By default, Corporations formed under state law are taxed as C Corps. This means that after the corporation is formed, it will be treated as a C Corporation unless it elects another tax classification, such as S Corporation status.
The following entities can also choose to be taxed as a C corporation:
- Limited Liability Companies (LLCs)
- Associations formed under state law
- Insurance companies
- Businesses owned by a state or local government
- Certain banks
- Corporations formed under foreign laws
Need help with C Corp taxes?
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Federal C Corp tax rules and requirements
Now that you know which entities can be taxed as C corporations let’s talk about C Corp tax rules and requirements. Learn more general information about how to incorporate your business.
C Corporations and double taxation
Many small business owners’ first question is “What is double taxation?” It’s true that C Corporations are generally subject to double taxation. But what does it mean? Double taxation occurs in two stages. First, the corporation pays income tax on its net profit. Then, shareholders are taxed when those profits are paid to them as dividends. The money is taxed twice – hence the name “double taxation.” Now that you have a clearer understanding of the term, you can move on to other aspects of corporate taxation. For the remainder of this article, we will focus on how the corporation itself is taxed.
Corporate-level income taxes
As mentioned above, C Corporations pay tax at the entity level. This entity level tax is different than the tax other businesses pay because it is a flat 21% tax. Other entity types, such as sole proprietorships and partnerships, will pay tax based on the owners’ individual income tax rate. The owner’s individual rate is progressive. This means the rate usually increases as the owner’s income increases.
Corporations must complete and file Form 1120 to calculate the income subject to the flat corporate rate. The due date for Form 1120 depends on whether the corporation follows a fiscal year or calendar year. Many C Corp businesses choose to be calendar-year corporations. For these corporations, the due date for Form 1120 is April 15th, the same due date for most individual tax returns.
On the other hand, some corporations choose to follow a fiscal year. This means their tax year does not follow the normal January 1 to December 31 calendar year. These corporations must file Form 1120 by the 15th day of the fourth month following the last day of their tax year. For example, if ABC Corp.’s fiscal year is June 1 to May 31, their Form 1120 is due by September 15th – their tax filing deadline.
Sometimes a corporation is not able to meet the deadline to file its Form 1120. When that happens, the corporation can file Form 7004 to request a 6-month extension. It is important to note that small business owners must still file Form 7004 before the original tax filing deadline to secure the tax filing extension.
Corporations that expect to owe at least $500 in income taxes will generally need to make quarterly estimated tax payments. These payments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the corporation’s tax year. For example, if ABC was a calendar year corporation, its payments would be due on April 15, June 15, September 15, and December 15.
Federal employment taxes
Corporations with employees must withhold, deposit, and pay employment taxes. These payroll taxes include income tax withholding, the employer and employee share of Social Security and Medicare tax (FICA), and unemployment tax (FUTA). Payroll taxes must be deposited throughout the year, and the due dates depend on the tax liability from the prior years and the type of employment tax return the corporation files.
Most corporations will be required to file Form 941 on a quarterly basis. Corporations that file Form 941 make their employment tax deposits either monthly or semi-weekly. Corporations with employees will also need to file Form 940 annually by January 31st.
State tax requirements
As mentioned above, the C Corp designation is an IRS income tax classification. This designation may or may not be recognized by every state. Some states impose an income tax on corporations, whereas others do not. Most states that impose an income tax on corporations follow the corporation’s federal tax classification. Your state(s) may also require you to file a corporate return.
In addition to income taxes, states may impose other taxes such as employment, gross receipts, or franchise taxes. These taxes will typically have a corresponding form and due date. Be careful – these forms and deadlines can be different from the federal tax deadlines discussed above.
Since every state is different, it is important that you understand the rules for the state(s) that you are organized in and the ones you do business in. This will help you remain compliant and avoid possible penalties.
Get help with C Corp taxes
In this article, we covered how C corporations are taxed, deadlines to put on your calendar, and other topics. However, if you still have questions, we’ve got your back. Block Advisors Small Business Certified tax pros have the expertise to walk you through the tax implications and help you understand C Corp taxes. Make an appointment now to get help understanding C Corp tax details relevant to your business and unique situation.
C Corp Tax FAQs
What taxes do C Corps pay?
C Corporations must pay federal income taxes if they have taxable income after claiming all available credits and deductions. In some states, state-level income and excise taxes also apply. Additionally, C Corps may have to pay both federal and state employment taxes.
Are C Corps really double-taxed?
Typically, yes. However, it may depend on whether the corporation pays dividends to shareholders. When a C Corporation has profits, it will likely have to pay the IRS an entity-level income tax on those profits. If the C Corporation then distributes the profits to shareholders in the form of a dividend, the shareholders will usually have to pay tax on the dividends they receive. A C Corporation may also be subject to double taxation at the state level, depending on the state.
How do C Corps avoid taxes?
C Corporations cannot participate in activities that are intended to avoid taxation. If done and discovered, the IRS penalties for such activities can be severe. Corporations can, however, claim deductions and credits they qualify for. This will reduce the corporation’s taxable income, resulting in a lower tax bill at the end of the year. Examples of deductions include general business expenses like advertising and wages, depreciation, state taxes paid, insurance, etc.
What does C Corporation tax mean?
C Corporation tax refers to the taxes paid by a C Corporation to the IRS, state, or local government. Depending on context, it may also refer to Subchapter C of the Internal Revenue Code. This section contains the rules for how C Corporations are taxed.
What percentage of taxes does a C Corp pay?
A C Corp pays a flat 21% tax on income for federal taxes. State income tax rates vary by state, see the rules for your state or consult with a tax professional to determine the percentage of tax you may owe.
Does a C Corp pay its own taxes?
Yes, C Corps are responsible for paying any income tax assessed on their income. This is in contrast to S Corps where the individual shareholders are responsible for paying income tax on the business’ income. Learn more about the different types of corporate taxation.