C Corp Filing Requirements: Everything You Need to Know

There are many requirements in filing a federal income tax return for your small business, depending on your business structure. Each type of entity requires a different tax form and filing requirements to report your business income and expenses. This article will bring you an overview of C corporations and C corp filing requirements.

What is a C corporation?

C corporation is a form of business organization in which the owner (or shareholders) are taxed separately from the business. Shareholders are the corporation’s owners, each owning a fraction of the company. A shareholder may own a share of the stock of the corporation. C corporations raise funds by selling these shares.

The C corp entity is taxed on income earned, whereas shareholders are taxed on individual income. A C corporation pays the same tax on its revenue as a person would on their annual salary—a flat 21% on operating earnings. 

Because shareholders in a C corporation are wholly separate from the corporation, income delivered to stockholders of profits or other payments is paid at the shareholders’ rates, leading to “double taxation.”

How are C corps taxed? 

C corps must first pay corporate taxes. Investors then pay taxes on profits received by the corporation. This tax rule is also known as double taxation, meaning that income taxes are paid twice on the same income source. Double taxation occurs when income is taxed at both the corporate and personal levels.

Though the possibility of double taxation is frightening, there are many ways that business owners can lower the taxes. For example, C corps can deduct its operating costs from its revenues, lowering its taxable income. So, if a corporation earns $100,000 in revenue but spends $65,000 on operating expenses in a financial year, the company’s tax liability is only $35,000, not $100,000.

Furthermore, C corp owners only pay their taxes if the corporation pays them profits. So if a C corporation decides not to sell stock and retains profits instead, it can also avoid double taxation.

All C corps must file and submit Form 1120. This report provides the IRS with information on the corporation’s revenue, gains, liabilities, deductions, and income tax payable.

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C corp filing requirements that you need to know

If you decide to run your business as a C corporation, here are the critical C corp filing requirements that you must know: 

  • Choose a business name. Your C corp must be a legal company with a legal reputation established with the authorities. Once you have filed your business as a C corp, you mustn’t operate under another registered name. 
  • File a certificate of organization. Before starting your business as a C corporation, you must file a certificate of organization with the tax agency in your country or state and pay an application fee. The agency will mail you a registration article once you have correctly registered.
  • Get an Employer Identification Number (EIN) and banking information. The IRS will only issue companies with an Employer Identification Number (EIN) and a commercial bank account.
  • Make a business agreement. Each entity level has different operating rules and regulations. A C corp’s rules identify its shareholders, restrict the number of shareholders, and establish financial distribution criteria.
  • Have a business representative. A C corporation must have a local representative who handles legal and tax paperwork on the company’s behalf.
  • Establish a board of directors. A C corporation should have an executive board of directors voted by the company’s shareholders. The board members are responsible for managing the corporation, making major business decisions, hiring, firing, managing officers, etc. 
  • Give out stock certificates. Shareholders are C corp owners, and they should be issued company shares indicating their ownership position in the corporation.

It’s also important to keep up with changes in tax rules and regulations, which can occur at any level. This can be particularly challenging if your company has multiple locations in different states, requiring you to follow tax rules in each jurisdiction.

The bottom line

A C corporation is the right corporate type for your company if you want to attract many investors, work with international partners, or sell internationally. If you choose to file your business as a corporation, it’s extremely important to be aware of C corp filing requirements, keep yourself updated on the tax rules and tax changes, and keep in hand the most suitable accounting tools to help your business prepare and file taxes accurately. 

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A Comparison Between Corporate and Individual Tax Formulas in the US

Dealing with tax formula issues is one of the most critical accounting tasks for freelancers or small business owners. Having a proper understanding of your tax liabilities will help you evaluate your business’s financial position, a key factor in business management. 

This article will help you clarify the tax formula between corporate and individuals. Let’s read on! 

In brief, corporate tax is an expense of a business levied by the government that represents a country’s primary source of income. In contrast, personal income tax is a governmentally imposed tax on an individual’s income, such as wages and salaries. It’s vital to remember that company tax is not the same as tax levied on an individual’s income.

What is the corporate tax formula?

Corporate tax is a direct tax paid to the state by corporations on their revenues. Tax revenue serves as a country’s critical source of income and is used to produce various programs for the advantage of its population. It also allows investment in business development and capital augmentation. 

A corporation is an independent legal organization with its own tax liabilities. The corporation’s profit comes from various areas, including sales revenue, capital gains, commissions, interest, and dividends. This profit is subject to a company tax levied by the government.

Corporate taxation is applied to the following types of businesses:

  • All companies established in the country (small, medium, and large)
  • Corporations that conduct business within the country
  • International companies with a longstanding presence in the region
  • Corporation owners that are resident aliens

Presently, the US lays a flat 21% corporation tax on listed corporations’ taxable income. The corporate tax rate in the US decreased from 35% to 21% in 2017. Globally, the corporate tax rate is revised every year. The revisions are commonly based on corporations’ financial situation and economic growth. In general, corporations pay 25.89% of local, state, and federal taxes.

Here is the corporate tax formula: 

Corporate tax = Taxable Income x Corporate Tax Rate 

Taxable Income = Adjusted Gross Income – All Applicable Deductions

According to the IRS, the Adjusted Gross Income (AGI) is calculated by the difference between gross income (e.g., wages, dividends, capital gains, business income, retirement distributions, etc.) and adjustments to income (e.g., educator expenses, student loan interest, alimony payments or contributions to a retirement plan). The total income is the annual revenue from product sales, commissions, interest, rent, and other factors. Applicable business deductions include early repayment fines, vehicle expenses, operating expenses, and other company expenses.

What is the personal tax formula?

The government levies a personal income tax on an individual’s income. In other words, an employee’s earnings are subject to income tax.

In particular, the following entities are subject to personal income tax:

  • Individuals working by themselves
  • Employees that work full-time for a company

Most people do not pay the total amount of income tax due to tax allowances, deductions, and credits. The IRS allows several deductions, such as healthcare and education expenses, for taxpayers to lower their taxable income.

Since 2012, there are seven federal tax brackets in the US: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your tax bracket is determined by your filing status and taxable income (such as wages.)

Here is the personal tax formula: 

Personal tax = Taxable Income x Personal Tax Bracket

Taxable income = Adjusted Gross Income – All Applicable Deductions

The bottom line

In closing, understanding different types of tax formulas gives you an overview of your tax liabilities and helps you take greater control of your finances. What’s more, you can get ready for tax season, file your tax returns correctly, avoid tax penalties, and make the most out of your eligible deductions. 

If you’d like to explore more about the US tax system, we encourage you to subscribe to the Shoeboxed blog. You can also check out our previous articles about business taxes and helpful tax tips: 

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All You Need to Do for Stress-Free Corporate Tax Preparation

If you own a corporation or have formed an LLC, you’re required to file a corporate tax return every year. Understanding your business structure and determining the necessary documents can help you prepare your corporate tax return more easily and efficiently. This article will walk you through the most practical steps for stress-free corporate tax preparation. 

Determine if your business is an S Corporation or a C Corporation

If you establish a corporation, your business will be automatically classified as a C corporation for federal income tax purposes. A C-corporation is a traditional corporation that pays corporate income tax on its profits and pays tax on its shareholders’ salaries and dividends.

This taxation on both the corporate and individual sides is sometimes known as “double taxation.”

Small businesses can avoid double taxation by requesting to be classified as S-corps because S corporations don’t have to pay any corporate tax. S corporations’ profits and losses are passed through to their shareholders’ individual tax returns, and those profits are taxed at their individual income tax rates. 

To be qualified as an S-corp, a corporation must meet specific requirements, including: 

  • Having fewer than 100 shareholders
  • Having only one type of stock
  • Not having corporations, partnerships, or non-resident aliens as stockholders
  • Being a domestic corporation

Prepare essential information

The necessary information for corporate tax preparation includes the company name, address, employer’s ID number, date of incorporation, and total assets. The corporate financial officer will also need to provide detailed information about the corporation’s income, including: 

  • Gross revenue
  • Cost of goods sold
  • Dividends
  • Royalties
  • Interests
  • Rental costs
  • Capital gains

Claim tax-deductible expenses

Corporations are able to claim many tax-deductible expenses against income, including employee salaries, bonuses, the cost of employee health insurance, and retirement programs.

Understanding and making the best use of these deductions will help you maximize your tax savings. To claim these expenses, the corporation’s financial officers should track these details throughout the year and be able to provide complete documentation in the event of an audit. The most common tax-deductible expenses are the following:

  • Employees’ compensation, allowance, bonuses, and other salaries
  • Employees’ benefit packages
  • Repairs and maintenance fees
  • Rents
  • Taxes and licenses
  • Interests
  • Contributions to charity
  • Depreciation costs
  • Advertising costs
  • Pensions and profit-sharing plans
  • Domestic production activities

Submit essential forms for corporate tax preparation

Form 1040

If you formed an LLC or hired yourself as an employee of your corporation and gave yourself a salary, you must list that personal income on your Form 1040. Some corporations can be considered “pass-through” entities, which means a legal business entity that passes any income it makes straight to its owners, shareholders, or investors. The company’s members or owners must then list the income, profit, and losses on their individual income tax returns.

Form 1120

Form 1120 is the tax form that C corporations (and LLCs filing as corporations) use to file their income taxes. This form also includes Schedule C. This form requires basic information about the corporation, including your employer identification number, the date you incorporated, total income, a list of deductions, and employees’ compensation. Form 1120 also includes other schedules that may or may not apply to your business, such as Schedule A (containing the cost of goods sold,) and Schedule K (listing your corporation’s information, e.g., your business type).

Schedule C

Schedule C records deductions, dividends, and any profit or losses that your business incurred. On this form, you can also record essential expenses to run your business (e.g., the mileage to and from business meetings or business meal expenses). Schedule C is not a stand-alone document and is usually supported by your Form 1040 or Form 1120.

Form 1065

If you have income through a partnership, such as a limited liability partnership, you may need to file Form 1065. According to the IRS, partnerships do not pay taxes on their income. On the other hand, their profit and loss are passed on to the partners’ individual tax returns. 

Other tax forms

If you hire employees or independent contractors, you need to submit other necessary forms as well. For example, if you withhold Social Security and Medicare from your employees, you must send W-2s and W-3s to the Social Security Administration. You must also file Form 944 electronically for federal unemployment taxes. If you paid more than $600 for each independent contractor for their work or services, you must submit Form 1099-MISC. You may also need to issue Form 1099-MISC if you paid more than $10 in royalties or broker compensation. 

File your federal tax return

The type of federal tax return you file for your corporation depends on whether you’re an S-corp or a C-corp. 

S-corp owners need to file the following forms: 

  • Form 1120-S: This form contains your corporation’s income, expenses, and losses. 
  • Form K-1: This form lists your corporation’s shareholders and their share of the corporation’s income, deductions, and credits. You must also provide your shareholders with copies of their K-1 forms so they can report their share of the corporate income or loss on their individual income tax returns.

If your business is a C corporation, you’ll file a corporate tax return on Form 1120. The corporation’s dividends are then filed on the shareholder’s individual tax returns.

File your state tax returns

You’ll also have to file a state corporate income tax return based on your tax status and the state where your corporation was formed. The corporate tax rate is commonly a fixed percentage that varies by state. If your corporation and/or its owners are registered to run business in other states, they may also need to file other state tax returns.

Pay estimated corporate taxes

While C-corps must pay estimated corporate income tax, S-corps must make estimated tax payments for certain S corporation taxes. You need to submit these estimated tax payments on a quarterly basis throughout the year.

Corporations that fail to pay their estimated tax payments on time may face interest and underpayment penalties.

Corporate tax preparation can be confusing, so it would be a good idea to consult with a tax professional or a certified accountant. By that, you can understand the consequences of C-corps or S-corps taxation, identify the deadlines for paying different corporate taxes, maximize your business tax deductions, and file your tax return easily. 

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Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

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