C Corporations represent some of the largest businesses, structured to offer ownership to many shareholders while operating as a distinct legal and tax-paying entity. While rarely chosen for small businesses, C Corporations play a vital role in the business landscape, bringing unique benefits and challenges, especially in taxation.

This blog will explore what defines a C Corporation, how they are taxed, their filing requirements, and the critical considerations for managing payroll and estimated taxes. 

What Is a Regular or C Corporation?

Very large businesses typically take the form of a Regular or C Corporation. It is incorporated by a charter from the Secretary of State of the state where the business chooses to legally reside, which may be different. Typically, many shareholders own a share of the business. Think Microsoft or Ford. One rarely sees a small business structured as a C Corporation. 

How Are C Corporations Taxed?

A C Corporation is a separate tax entity that pays income taxes based on the profit it generates each year. If it has a loss, the corporation will carryforward the loss (subject to limitations) indefinitely to a year when there is a profit and offset the allowed loss against the profit in that year until exhausted. 

One tax disadvantage of a C Corporation is the treatment of shareholder dividends. These dividends come from profits after the corporation pays its taxes and are also taxable to the shareholders when received by them, resulting in “double taxation.” 

The corporate tax rate is currently 21% on all taxable income.

What Tax Form Does a C Corporation File?

The C Corporation files an IRS Form 1120. The Form is due by the fifteenth day of the fourth month after the corporation’s year-end. This is typically April 15 (for a tax year ending on December 31). A six-month extension is available. 

Expert Tip: Any extension is an extension of time to file the return and NOT an extension to pay.

Estimated Taxes for a C Corporation

The Internal Revenue Service (IRS) requires businesses to pay taxes on a pay-as-you-go basis instead of all at once at the end of the year. A C Corporation makes estimated tax payments on April 15, June 15, September 15, and December 15. They must pay any balance due when they file the return. 

If they do not pay enough taxes by these dates or make no estimated payments, the corporation can be penalized for underpaying tax. 

Payroll Taxes for a C Corporation

Any employee of a C Corporation – whether they are a shareholder or not – that receives salaries, wages, or other compensation is subject to federal and state (if applicable) payroll taxes. It is the corporation’s responsibility to withhold these taxes, match and/or pay any required by law, and remit these amounts to the appropriate taxing agency on a timely basis. 

Payroll taxes can be a significant cost with potential ramifications on cash flow, and businesses should not ignore them.