By Bert Seither, Vice President at 1-800Accountant

About the author: Bert Seither is the Vice President at 1-800Accountant, the nation’s leading accounting and business development firm. For over 10 years, Seither has assisted small business owners to help put their companies on a path to prosperity.

Are you interested in opening the doors to a brand new, shiny small business? Does the concept of self-employment make you dream of a more flexible and fulfilling life? If so, it is extremely important to know about the various types of business structures from which you can select when formally registering a company with your state. What this also means is that you should take a close look at how the IRS treats each business entity structure when it comes to taxes. Getting into a business is one of the biggest decisions you’ll ever make, and choosing the appropriate business type and tax structure is right up there on the priority list as well.

One business entity type you may choose to consider is the C corporation, or C corp for short. This kind of business has the structure of a basic corporation. When filing your federal taxes with Uncle Sam, the IRS classifies a C corp as a completely separate entity that an entrepreneur owns. In basic terms, a C corp can be formed when funds or property are exchanged among prospective shareholders in a particular company. The reason this is done is for the capital stock of the corporation at-hand. A nice advantage to owning a C corporation is that it will typically enjoy more deductions and other tax-saving opportunities compared to those available to sole proprietors when calculating their taxable income. Deductions are always a perk because it means more money is kept in the business owner’s pocket.

As far as taxation is concerned, the profits that a C corporation generates are taxed to the corporation when they are earned. As a result, the profits are then taxed to the shareholders of the company when these earnings are distributed as dividends. These two forms of taxation create what is called a double tax. Due to this complication, a C corp cannot claim a tax deduction when distributing dividends to its shareholders. The shareholders are also unable to deduct any losses that the company incurs.

Unlike the more basic requirements of individual taxpayers, there are numerous taxes businesses are on the hook for with the IRS. These tax obligations vary depending on the type of business entity structure at-hand. C corps must generally pay income taxes, employment taxes, estimated taxes, and excise taxes. With the IRS opening up more filing options in recent years, C corps with assets that are equal to or are in excess of $10 million must file their taxes electronically. C corp owners should use Form 1120 when filing. E-filing became a requirement starting with filings in late 2007.

If you intend to set up your own C corporation, you’ll be able to enjoy many of the tax benefits that the big companies out there can claim. But C corps do not represent the best choice for every small business owner out there, so be sure to examine your options and determine what is best for your specific circumstances.