C Corporation Taxes and Form 1120

A C corporation is a separate taxpayer. It files its own return, pays its own tax on its profits and is owned by shareholders who are taxed again when they receive dividends. Most large public companies are C corporations, and so are many venture-backed startups. This guide explains the C corporation tax rate, how double taxation works, the forms and deadlines for Form 1120, and what Illinois adds.

How a C corporation is taxed

A corporation reports income and deductions on Form 1120 and pays tax of 21% on taxable income (the rate applies to tax year 2025 and 2026). It takes most of the same deductions as other businesses, including wages, rent, interest and depreciation. Net operating losses from tax years after 2017 can offset only 80% of taxable income in a later year.

Shareholders are not taxed on corporate profit while it stays in the company. They are taxed when they receive a dividend, and again when they sell their stock at a gain. Shareholders cannot deduct a corporation's losses.

Example (tax year 2025, hypothetical): A C corporation has $100,000 of taxable income and pays $21,000 of federal tax. It distributes the remaining $79,000 as a qualified dividend to a shareholder in the 15% dividend tax bracket, who pays $11,850. Total federal tax is $32,850, before any 3.8% net investment income tax and state taxes. An S corporation or partnership with the same profit would typically have one level of federal tax.

Owners who work in the business are employees. Their pay is a deductible wage to the corporation and is subject to payroll tax. A corporation can generally deduct a reasonable salary, but pay that exceeds what is reasonable can be treated as a nondeductible dividend.

Other rules that matter

• Dividends received deduction. A corporation can generally deduct 50% of dividends from domestic corporations it owns less than 20% of, 65% when it owns 20% or more, and 100% in certain cases.
• Charitable contributions. The deduction is limited to 10% of taxable income, with excess carried forward five years.
• Accumulated earnings tax. A 20% tax can apply to earnings kept beyond reasonable business needs. Accumulations up to $250,000 ($150,000 for certain personal service businesses) are generally treated as reasonable.
• Depreciation and research costs. Under the One Big Beautiful Bill Act, qualifying property acquired after January 19, 2025 generally gets 100% first-year bonus depreciation. The section 179 limit is $2,500,000 for 2025 and $2,560,000 for 2026. Domestic research costs can be deducted for tax years beginning after 2024. See depreciation and section 179.

Forms, deadlines and penalties

Fiscal-year corporations file by the 15th day of the 4th month after year-end. Domestic corporations that are not tax-exempt must file Form 1120 even if they have no taxable income. Corporations that file 10 or more returns of any type in a year must e-file.

Estimated tax. A corporation expecting to owe $500 or more must pay estimated tax electronically in installments due the 15th day of the 4th, 6th, 9th and 12th months of its tax year. Form 2220 figures any underpayment penalty.

Late filing and payment. The late filing penalty is 5% of unpaid tax for each month or part of a month, up to 25%. The late payment penalty is 0.5% of unpaid tax per month, up to 25%. For a return more than 60 days late and due in 2026, the minimum late-filing penalty is the smaller of the tax due or $525. Interest is added on unpaid tax.

When a C corporation makes sense

People choose C corporations for outside investors who want preferred stock, for plans to keep earnings in the business at a 21% rate, for foreign or entity shareholders who cannot own S corporation stock, and for the possible qualified small business stock exclusion on a future sale. They avoid them when profits would mostly be paid out, because of the second layer of tax. Compare options in LLC, S corporation or C corporation.

Illinois notes

Illinois taxes C corporations at 7% of net income, plus personal property replacement tax of 2.5% of net income. Illinois also enacted 2026 income tax changes (Public Act 104-0468), so check the Illinois Department of Revenue's bulletin FY 2027-01 and current form instructions for items that affect your return.

Common mistakes

• Paying personal expenses from the company, which can be taxed as dividends
• Missing estimated tax installments
• Not putting working owners on payroll
• Undocumented loans between the company and shareholders
• Assuming no return is due when there is no income

How we can help

We can prepare Form 1120 and Illinois returns, compute estimated payments, set up owner payroll and model a C corporation against other structures. See business tax preparation, payroll services and virtual CFO and advisory.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.