Tax Treatment of C
Corporations
For federal income tax purposes, a C
corporation is recognized as a separate taxpaying entity. The corporation
conducts business, realizes net income or loss on the business activity,
pays taxes, and distributes the profits to its shareholders. This creates
a double tax effect. Income is taxed to the corporation as earned, and
taxed again to the shareholders as dividends when distributed. The
corporation does not get a tax deduction when it distributes dividends to
its shareholders. Unlike partnerships, various types of income do not
retain their character as they pass through the corporate entity. The
corporation does not act as a conduit when making distributions to
shareholders.
Form 1120-A
Form 1120-A, U.S. Corporation Short-Form
Income Tax Return, is a simplified form that can be used instead of Form
1120 if the corporation meets all of the following requirements.
Gross receipts are under $500,000.
Total income is under $500,000.
Total assets are under $500,000.
Does not have ownership in a foreign corporation.
Does not have foreign shareholders who own 25% or more of its stock.
Not a member of a controlled group or a personal holding company.
Not a consolidated corporate return filer.
Not a corporation undergoing a dissolution or liquidation.
Not filing its final tax return.
Has no nonrefundable tax credits other than the general business
credit and the credit for prior-year minimum tax.
Only dividend income is from domestic corporations and those dividends
that qualify for the 80% (or 70%) deduction.
Not an organization required to file a specialized form such as Form
1120S, 1120-L, 1120-POL, etc.
Has no liability for interest relating to certain installment sales of
timeshares and residential lots, or interest on deferred tax liability or
installment payments of tax.
Not subject to environmental tax.
Form 8109, Tax Payments
A corporation does not send tax payments
directly to the IRS. Estimated tax payments, and any tax due on Forms 1120
or 1120-A, are paid either to an authorized financial institution or to a
Federal Reserve Bank. The corporation should use a Federal Tax Deposit
Coupon (Form 8109) when making such payments. Darken the box marked
"1120," and write the employer ID#, Form 1120, and the tax
period to which the deposit applies on the check or money order. Records
of the deposits are sent to the IRS for crediting to the corporations
account. The corporation may be penalized if this procedure is not
followed. [IRC §6656]
