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Finance

Do the profits from a corporation that files a 1120 form transfer to the shareholders with a K-1?

Who pays the tax from the profits? The company has made a profit for the first time. The shareholders are concerened that the profits will raise the taxliabilty on their personal return.
Opinions expressed by Entrepreneur contributors are their own.
Congratulations on making a profit, especially in today’s shaky economy.

Now for some not so good news: Corporation profits are subject to double taxation. The corporation pays taxes on its profits, reported on Form 1120 U.S. Corporation Income Tax Return.

In addition, each shareholder is required to pay taxes on any corporate profit distributions, called dividends. Dividend income is absolutely taxable income that must be reported on their respective individual income tax returns. Ordinary dividends are taxed at the taxpayer’s ordinary income rate.

Now, for reporting shareholders' dividends, C Corporations will need to issue 1099-DIV Dividends and Distributions for each shareholder payment over $10.00. Remember, the shareholder is issued a copy, and the IRS is issued a copy.