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Tax Implications of a C Corporation

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April 17, 2014

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The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation. Shareholders who perform services through the corporation are employees, and pay federal income tax, Social Security tax, and Medicare tax on their salary. The post-tax net income of the C-corporation can be distributed in the form of dividends, which is taxed to the shareholder. Shareholders receive income from the corporation either in the form of salary or in the form of dividends. Losses offset taxable income of the C-corporation by being carried back or carried forward to other tax years.


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