Tax Disadvantages of C Corporations

Perhaps the most significant tax disadvantage for owners of C corporations is that these entities have a form of double taxation. The corporation itself is taxed, as are the dividends it earns. These taxes are collected before the shareholders receive their after-tax shares of the profits. This is the main reason that many people choose to create a different kind of business entity such as an S corporation or a partnership.

There are three other significant tax disadvantages to C corporations:

  1. If there is any taxable gain from the liquidation or sale of corporate assets, there will also be double taxation to the shareholders
  2. In terms of special allocations of profits or expense items, C Corporations are less flexible than partnerships
  3. Losses to the corporation cannot be passed through to the shareholders

Inside Tax Disadvantages of C Corporations