How is C-Corp Double Taxed?
When a business operates as a C-Corp, they have to pay taxes on all of its income at the current corporate rate of 21%. Then the corporation will pay the owners of the corporation who are then taxed at their personal tax rates
The corporation will distribute the income to the owners in the form of dividends. The owners then have to pay taxes on this dividend distribution.
Example:
C-Corp has $100mil in revenue, and $30mil in expenses.
Net income is $100 – $30 = $70mil.
The corporation will pay taxes on this $70mil at the corporate rate of 21%. Which is $70 x 21% = $14.7mil
The money left over is $55.3mil. If the corporation distributes all of this as dividends, here is the calculation of what the shareholder will pay in taxes.
In this example, there is only one shareholder and he will be getting all of the dividends. The tax rate for dividends that are qualified, which his are, is 20% max rate. So his taxes are
$55.3mil x 20% = $11.06mil in taxes
He will also have to pay net investment income taxes of 3.8% on the $55.3mil ====> $2.1 mil
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Here is the IRS link for C-corp info: https://www.irs.gov/corporations
