How is a C-Corporation taxed?
Unlike many other business entities in which the profits pass through to the owners personal tax return (e.g., LLCs, Corporations, etc.) the C-Corporation is a completely separate taxable entity. The C-Corporation pays federal taxes on the net profits (after all expenses, including salaries and bonuses) of the business by filing the 1120 form with the IRS. The after-tax profits can be paid out to the owners (shareholders) in the form of dividends, or retained for reinvestment of the business. The first $50,000 of net income is only federally taxed at 15% rate, and the next $25,000 is taxed at a 25% rate. Different states have different rules on how they tax corporations.
