Explain the difference between a C corporation and an S corporation for taxation.

• A. C corporation is taxed at the corporate level and again when profits are distributed as dividends; S corporation is a pass-through entity taxed only at the shareholder level.
• B. C corporation is taxed at corporate level only; S corporation is taxed at all levels.
• C. C corporation is pass-through taxed at shareholder level; S corporation is taxed at corporate level and shareholder dividends.
• D. C corporation is taxed only at the shareholder level; S corporation is taxed at corporate level.

Answer: (A)

The main point is how profits are taxed based on the type of corporation. A C corporation pays tax on its profits at the corporate level. If those profits are distributed to shareholders as dividends, they’re taxed again at the individual level, so you get double taxation. An S corporation, on the other hand, is a pass-through entity: the business itself generally doesn’t pay federal income tax. Instead, the profits (or losses) flow through to the shareholders and are taxed on their personal tax returns at their own rates. This means no entity-level tax for S corporations, though state taxes and certain eligibility rules can apply.

So the correct description is that C corporations face corporate-level tax plus tax again when profits are distributed as dividends, while S corporations are taxed only at the shareholder level. The other descriptions don’t match how pass-through taxation works for S corporations or how double taxation works for C corporations.