A corporation taxed as its own entity at a flat 21 percent, with shareholders taxed again on dividends. Used by companies raising venture capital, retaining earnings, or planning for qualified small business stock.
C corp: entity-level 21 percent tax, dividends taxed again, unlimited owners, QSBS eligible. S corp: no entity-level federal tax, income passes to owners, 100 shareholder limit, no QSBS.
Double taxation makes it wrong for most small owner-operated businesses, but the flat rate and the QSBS exclusion (up to $15 million of gain tax-free under the 2025 law for stock issued after July 4, 2025) make it right for startups planning an exit.
Usually not, unless you are raising outside investment, keeping profits in the company for growth, or targeting the QSBS exclusion. Most owner-operated businesses pay less as pass-throughs.
Source: IRC 11; IRC 1202 as amended by Public Law 119-21
Last reviewed September 17, 2026. Tax rules change; confirm current law before acting.
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