BizTerm Definition
Double Taxation
Full Definition

C Corporations are treated as a separate legal taxable entity for income tax purposes. They pay tax on their earnings. After tax profits that are left over can be held by the corporation for business purposes (Retained Earnings) and/or distributed to shareholders as dividends. Dividends are taxed as income to the shareholder. Therefore, as a shareholder, you are double taxed on the same income (corporate income and dividends). S Corps and LLC?s allow pass through of profits to the shareholders (Members of an LLC) without double taxation.

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