Double Taxation of Corporations

Some people have a misunderstanding of how double taxation and a C corporation work. Most people think that you are required to be taxed twice if you have a C corporation but the fact is that is not completely correct. In fact there are three ways to be paid with a C corporation and only one of them results in double taxation.

Double Taxation of Corporations

When a C corporation issues a dividend to its shareholders it is issuing money that has already been taxed to the corporation and then the shareholder must pay tax on that dividend which results in double taxation. However there are two other ways for a shareholder to be paid that do not result in double taxation.

Paying a Salary

If the C Corporation pays a salary to the shareholder it would then be deductible for the C Corporation and then taxable to the shareholder. In this case the shareholder is being taxed but only once.

Paying Employee Benefits

The second option is paying employee benefits to the shareholder and these benefits would be deduction for the corporation and result in no taxes for the shareholder. This option is completely tax free.

If you are thinking about using a C corporation you should think about not paying dividends and instead using an option that results in last taxation.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.

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