With tax laws constantly evolving, structuring your business the right way can make a big difference in what you owe. For some companies, switching to a C-Corp could unlock tax advantages, but is it the right move for you? In this blog, we’ll break down the pros and cons of a C-Corp structure, how it compares to other entities, and key tax considerations to keep in mind. 

Why Business Structure Impacts Your Taxes: Important Background Information

What is an LLC?

A Limited Liability Company (LLC) offers the liability protection of a corporation with the tax flexibility of a partnership. Profits and losses pass through to the owners’ personal returns, and members aren't personally liable for business debts.

What is a C-Corp?

A C corporation is a separate legal entity. It pays taxes on its profits, and shareholders pay taxes again when those profits are distributed as dividends, commonly known as double taxation. C-Corps have formal governance, including a board of directors and officers.

What is an S-Corp?

An S corporation is a pass-through entity that allows income, losses, and deductions to flow through to shareholders’ personal tax returns, avoiding corporate-level tax. Unlike LLCs, S-Corps must meet certain IRS requirements: they can have no more than 100 shareholders, all of whom must be U.S. individuals. 

Potential Tax Advantages of a C-Corp

While the idea of “double taxation” can be a turnoff, C-Corps offer distinct benefits that may outweigh the drawbacks, depending on your goals. Benefits include: 

• Flat 21% Tax Rate- This can be significantly lower than top individual income tax rates, especially if profits are retained in the business rather than distributed.
• Ability to Reinvest Earnings- C-Corps can retain after-tax profits to fuel growth without passing income through to shareholders each year.
• Qualified Small Business Stock (QSBS)- Under Section 1202, shareholders in certain C-Corps may be eligible to exclude up to 100% of capital gains on the sale of stock, offering significant benefits for founders and early investors.
• Attractive to Investors- Venture capital and institutional investors typically prefer C-Corps for equity financing and scalability.
• Better for Employee Equity Plans- C-Corps are best suited for offering stock options, restricted stock, and other equity-based incentives.

Potential Drawbacks of a C-Corp

C-Corps aren’t the right fit for every business. Potential drawbacks include:

• Double Taxation- Profits are taxed at the corporate level, then again when distributed as dividends to shareholders.
• No §199A Pass-Through Deduction- Unlike S-Corps or LLCs, C-Corps don’t qualify for the 20% qualified business income deduction under the Tax Cuts and Jobs Act.
• Increased Complexity- Ongoing compliance requirements like board meetings, shareholder minutes, and annual filings add time and cost.
• Potential State-Level Tax Disadvantages- Some states impose higher tax rates on corporations, or minimum franchise taxes regardless of income.

C-Corp vs. Other Entities

When Does It Make Sense to Become a C-Corp?

A C-Corp structure may be right for your business if:

• You’re raising capital from venture funds or institutional investors
• You plan to retain earnings rather than distribute them
• You want to take advantage of QSBS
• You’re building toward a public offering or acquisition
• Your current structure creates more tax drag than benefit

Ask Yourself: Is Now the Right Time to Restructure?

Before making a move, ask:

• Are we retaining or distributing most of our profits?
• Do we plan to raise outside funding?
• Can we benefit from QSBS?
• What’s our long-term growth and exit plan?
• Can we manage the added compliance requirements?

Choosing the right business structure is one of the most important tax and strategic decisions you can make. While a C-Corp isn’t right for everyone, the potential advantages, from flat tax rates to capital gains exclusions, can be significant for the right business.

Check out our comprehensive summary of OBBBA and its impact on businesses: 2025 Big Beautiful Bill Signed Into Law: What Tax Changes Mean for Business Owners, and Save the date for our Year End Tax Planning Webinar.