C Corporations

C corporations are taxed as separate entities from their shareholders. The corporation pays taxes, and you pay taxes as an employee—the so-called "double taxation." Investors are taxed on the dividends they receive.

C corporations can generally offer more fringe benefits than S corporations and partnerships. However, C corporations may receive more IRS scrutiny. Salary paid to you and other shareholders must be reasonable, or a portion of it may be reclassified as a nondeductible dividend payment. If earnings are accumulated beyond the reasonable needs of the corporation, an additional tax of 15% will be imposed on these earnings.