Tax glossary

C Corporation

C Corporation — what it means, how it works, and a real example, explained without the jargon.

What is C Corporation?

A C corporation is a standard corporation that pays its own income tax at a flat 21% federal rate, separate from its owners.

How it works

The company is taxed on its profits; then, when it distributes those profits as dividends, shareholders are taxed again on their personal returns. That's the famous "double taxation" — the price of the C corp's flexibility and its appeal to outside investors.

A quick example

A C corp earns $500,000 and pays $105,000 in corporate tax. If it then pays dividends, shareholders owe tax on those too — a second layer on the same profits.

What people get wrong

Double taxation sounds bad, but C corps shine for startups raising venture capital and businesses reinvesting profits rather than distributing them. The right structure depends on your growth plans.

UpTax.AI

Let AI prepare this — your CPA reviews.

  • AI drafts 1040s & business returns
  • A US CPA/EA verifies every number
  • Your first 5 returns are free
Book a demo Watch the 2-min demo →

SOC 2 in progress

Frequently asked questions

What does C Corporation mean?

A C corporation is a standard corporation that pays its own income tax at a flat 21% federal rate, separate from its owners.

How does C Corporation work?

The company is taxed on its profits; then, when it distributes those profits as dividends, shareholders are taxed again on their personal returns. That's the famous "double taxation" — the price of the C corp's flexibility and its appeal to outside investors.

What's the most common mistake with c corporation?

Double taxation sounds bad, but C corps shine for startups raising venture capital and businesses reinvesting profits rather than distributing them. The right structure depends on your growth plans.