Which statement about C corporations is true?

Which statement about C corporations is true?

• A. Pass-through taxation at owner level only.
• B. Not subject to corporate taxes.
• C. Only taxed when profits are distributed.
• D. Taxed at corporate level and distributions to shareholders are taxed as well, losses do not flow through.

Answer: (D)

C corporations are taxed as separate entities, so they pay corporate income tax on their earnings. When those after-tax profits are distributed to shareholders as dividends, the individuals must report and pay tax on those dividends again on their personal tax returns. This double taxation—once at the corporate level and again at the shareholder level—is why the statement that describes tax at the corporate level and on distributions to shareholders, with losses not flowing through to owners, is the correct characterization for C corporations. The other ideas describe pass-through taxation (which applies to partnerships and S corporations), no corporate taxes at all, or taxation only when profits are distributed, none of which accurately describe how C corporations are taxed.

C corporations are taxed as separate entities, so they pay corporate income tax on their earnings. When those after-tax profits are distributed to shareholders as dividends, the individuals must report and pay tax on those dividends again on their personal tax returns. This double taxation—once at the corporate level and again at the shareholder level—is why the statement that describes tax at the corporate level and on distributions to shareholders, with losses not flowing through to owners, is the correct characterization for C corporations.

The other ideas describe pass-through taxation (which applies to partnerships and S corporations), no corporate taxes at all, or taxation only when profits are distributed, none of which accurately describe how C corporations are taxed.