C corporations, like flying, were once a choice of last resort. The aversion of most taxpayers to doing business as a C corporation was attributable to the possibility of suffering a fate worse than death: DOUBLE TAXATION.
Double taxation is the hallmark of the subchapter C regime. Unique in the tax world, C corporations are first taxed on their income at the entity level. Then, when the business owner withdraws the income, the owner is taxed on the income a second time as a dividend. Under current law, the top rate on corporate income is 35%; meanwhile, the top rate on dividend income is 23.8%. As you might imagine, this can lead to painful consequences when doing business as a C corporation.
Authored by Tony Nitti, Withum Partner and writer for Forbes.com.