When to Consider a C-Corp: Debunking the Double Taxation Myth

Weekly Tax Tips

Trivia Question❓

Which social media giant structured itself as a C-Corporation to raise capital through multiple funding rounds before going public?

Answer at the bottom of the newsletter

When to Consider a C-Corp: Debunking the Double Taxation Myth

For years, the C-Corporation structure has gotten a bad rap—mostly due to the dreaded phrase: “double taxation.” And while it’s true that C-Corps pay taxes at the corporate level and again when profits are distributed as dividends, that doesn’t mean the C-Corp structure is always a disadvantage. In fact, for certain business owners, electing to be taxed as a C-Corp can be a strategic tax-saving move.

So, when does it make sense to consider a C-Corp? Start with the corporate tax rate. Thanks to the Tax Cuts and Jobs Act of 2017, the flat federal tax rate for C-Corps is just 21%. Compare that to a high-earning individual in a pass-through entity (like an S-Corp or LLC), where income can be taxed at up to 37% at the personal level—not including state taxes or self-employment tax. If you’re planning to reinvest profits in your business rather than immediately distributing them, C-Corp status can allow you to retain more after-tax dollars for growth.

Additionally, C-Corps can offer deductions and benefits that aren’t always available to pass-through entities. For example, they can fully deduct health insurance premiums, fringe benefits, and retirement plan contributions for owners and employees. If you're looking to offer competitive benefits packages or build tax-deferred wealth through a company-sponsored retirement plan, the C-Corp structure can work to your advantage.

There are also advantages when it comes to raising capital. Investors often prefer C-Corps, especially in the startup or tech space, because of the simplicity of issuing shares, the ability to create multiple classes of stock, and access to qualified small business stock (QSBS) exemptions—which can eliminate capital gains on the sale of stock held for five years or more.

Of course, if you’re pulling out all profits annually, the second layer of taxation might not be worth it. Dividends paid to shareholders are taxed again at the individual level, which can bump up your effective tax rate. That’s why C-Corps are best suited for companies that reinvest profits, plan to retain earnings, or are positioning for acquisition or outside investment.

Bottom line: The C-Corp structure isn’t a tax trap—it’s a tool. With the right strategy, it can reduce your tax burden, enhance benefits, and support your long-term growth goals. Talk to your CPA about whether a C-Corp might make sense for your specific business model and financial objectives. Sometimes, the path less chosen leads to the greatest advantage.

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💡 Answer to Trivia Question:

Facebook (Meta).

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