When you have a regular corporation and you don’t file an S election, the corporation is going to be taxed at approximately 9% in California and 34% in federal government. Of course, the rate at which you are taxed for state taxes differs per state. You get the credit for the state tax against your federal tax so you’re paying about a 40% tax rate. When you hand out dividends to your shareholders out of the C corporation, they again pay at their personal rate, which is roughly 40%. It’s a detriment to have a C corporation when you’re planning on paying profits out. The ultimate after-tax cleanse that the shareholders receive are under 30% of the profits because you’re first paying your corporate taxes and then you’re paying your personal taxes.
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