What is Double Taxation? Definition, requirements, and how it applies to your business formation. Learn everything about double taxation for LLCs and corporations.
# Double Taxation
Double taxation refers to the taxation of corporate income at two levels: first at the entity level (the corporation pays corporate income tax on its profits at 21% federal rate), and again at the shareholder level when those profits are distributed as dividends (taxed at the shareholder's individual rate, typically 15-20% for qualified dividends).
Double taxation is the primary disadvantage of C-Corp status. However, it can be mitigated through strategies like paying reasonable salaries (deductible at the corporate level), retaining earnings for growth, or electing S-Corp status to eliminate entity-level tax entirely.
Lovie's entity selection guidance helps founders weigh double taxation against the benefits of C-Corp status (fundraising flexibility, unlimited shareholders, stock classes) to make the right structural choice.