Everything You Need To Know About C Corporation Taxes

Tax Benefits | Tax Filing | How to fill out Form 1120-S | Estimated Taxes

Entrepreneurs love solving puzzles, and one of the more complicated puzzles to try and piece together is deciding whether C corporation status makes sense for your business.

Incorporating a business can be expensive and involve ongoing paperwork and compliance requirements. Some businesses should steer clear of the headaches required of maintaining C corporation status.

Other businesses, however, will gladly invest the extra time and money required to incorporate. If you are considering pursuing a C Corporation status for your business, it would be prudent to conduct a thorough examination of the tax history of C Corporations, as well as the intricacies of formation, including the development of bylaws, stock option plans, and other regulatory requirements, before arriving at a decision.

For businesses that use the C corporation entity structure correctly, the decision to incorporate an offer is a very attractive legal and tax planning options.

C Corporation Tax Rates

As previously mentioned, C corporation profits are actually taxed at the entity level, unlike SMLLCs and S corporations, whose profits are taxed at the individual shareholder or owner level. 

The current tax rate for C corporations is a flat 21%.

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When are C corporation tax returns due?

Tax returns for calendar-year C corporations are due April 18. C corporations must also make estimated tax payments if required. First-quarter payments are due April 18th; second-quarter payments are due June 15th; third-quarter payments are due September 15th; fourth-quarter payments are due December 15th.

A C corporation with a fiscal tax year must generally file its tax return by the 15th day of the 4th month after the end of its tax year. The one exception to this rule is for a C corporation that has a fiscal year ending June 30th, whose due date is the 15th day of the 3rd month after the end of its tax year (i.e. September 15th).

How are C corporations taxed?

A C corporation files its tax return on Form 1120. (Don’t confuse this form with Form 1120-S, which S corporations use to file tax returns.) Shareholders can receive money from the corporation in the form of wages or salary (for which they would receive a Form W-2), or dividends (reported on Form 1099-DIV), but a C corporation shareholder does not report an allocated amount of revenue and expenses as an S corporation shareholder does.

This section discusses filing a C corporation tax return. Please contact our office with any questions about filing a Form 1120, Form 1099-DIV, or a Form W-2.

How to fill out Form 1120

  • Keep your accounting records and financial statements up-to-date. An accurate balance sheet and income statement helps to make preparing your C corporation tax return extremely easy every year and will ensure that you don’t run the risk of reporting too much (or too little) income. If your business grows big enough, you’ll be required to report your balance sheet on Schedule L of your C corporation’s tax return.
  • Record your income. The first section of Form 1120 is where your business’s income and cost of goods sold are recorded.
  • Record your expenses. The second section of Form 1120 is where your business’s expenses are recorded.
  • Calculate your net profit or loss. Subtract your total expenses from your gross income to compute your net profit or loss. On a C corporation tax return, the technical name for your business’s profit or loss is “taxable income (or loss)”.
  • Calculate taxes owed and payments made. Calculate your C corporation’s tax liability according to the Form 1120 instructions. Also, record any payments made during the tax year along with any tax credits.
  • Determine balance owed or overpayment. The final dollar amount on Page 1 of your Form 1120 will tell you either how much money you still owe the U.S. Treasury or how much money you overpaid to the U.S. Treasury.
  • Complete Schedule C. This schedule calculates any dividends that will be distributed to shareholders, along with various special deductions.
  • Complete Schedule J. This schedule is where you will compute the tax liability of your C corporation.
  • Complete Schedule K. This schedule contains miscellaneous questions and information about your C corporation.
  • Complete Schedule L. If required, complete Schedule L. This is where you would report your business’s balance sheet.
  • Complete Schedule M-1. This schedule is where you reconcile taxable vs. non-taxable income and deductible vs. non-deductible expenses.
  • Complete Schedule M-2. This schedule is a more detailed look at the C corporation’s retained earnings.

Disclaimer: This page is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written, and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.