Can I Form a C-Corporation to Save on Taxes?

A C-Corp is taxed at a flat 21% rate, which can be attractive if your personal marginal rate is higher. The strategy of leaving profits inside a C-Corp to avoid personal income tax at higher rates is called "income deferral." However, C-Corps face double taxation — the corporation pays tax on profits, and shareholders pay tax again on dividends. If you want to take money out as salary, you'll still owe ordinary income and payroll taxes. C-Corps work best for companies that reinvest most of their profits, plan to seek outside investors, or want to provide certain employee benefits. Most small business owners are better served by an S-Corp, but a CPA can model both options for your situation.