But there are many different types of corporations. Some are publicly traded, some are closely held, others are private corporations or not for profit entities. In addition a corporation which exists in the tax law only is the S Corporation.

S-Corporations
This is a closely held corporation established and protected by its state laws but not subject to the usual corporate income and penalty taxes. Rather, the tax is paid on the undistributed profits by the individual shareholders via their individual income tax return/rates. You might say that an S Corporation is a corporation for legal purposes but a partnership for tax purposes. Not all corporations are eligible for election to be treated as an S Corporation. IRS requirements include:

1. A maximum of 75 shareholders.
2. Must be a domestic corporation.
3. Shareholders must only be individuals, estates or trusts.
4. The corporation can only have one class of stock.

Most but not all states recognize the S Corporation election. This election is jointly made by the corporation and shareholders with the timely filing of Form 2553 with the IRS. Generally an S Corporation must use a calendar year end. Individual income tax information is provided to the individual shareholders via Form K1 (1120S). The corporation itself files an information return only using Form 1120S.

Limited Liability Company
A limited liability company might be the preferred alternative of doing business for closely held corporations. Because of more flexability in organization and capital structure, the LLC likely is more beneficial as to tax considerations. Similar to an S Corporation, the LLC provides limited liability for legal purposes and follows partnership rules for taxation.

Conventional Corporations
A regular corporation is a separate taxable entity from its shareholders. DThe corporation computes its own taxable income based on the usual income and expense rules. Dividend payments to the shareholders are not deductible, however, by the corporation and are taxed to the shareholders. Thus, the issue of double taxation arises.

The maximum corporate income tax rate is 38% as contrasted with the top individual rate of almost 40%. The lowest corporate rate is 15%. There are some similarities and differences between corporate and individual taxation.

1. Nontax considerations often favor the corporate form of doing business like limited liability, capital markets, easy transfer of ownership, and unlimited life.
2. Gross income is determined under similar rules.
3. The corporation gets no deduction for personal exemptions, dependents, itemized/standard deductions.
4. Treatment of some capital transactions is materially different.
5. The corporation may chose any fiscal year end.
6. Generally, the corporation must report using the accrual method of accounting.
7. Closely held C corporations may offset passive losses against regular income.
8. Charitable contribution deductions are limited to ten percent of th corporation's taxable income.
9. Certain corporate dividends escape taxation.
10. The corporation files Form 1120 while the individual reports using Form 1040.
11. Corporations do not compute Adjusted Gross Income.
12. Personal type tax credits (earned income, education, child care, etc.) are not available to corporations.

Dividends Received Deduction
Maybe the most significant tax advantage available to the regular corporation is the ability to deduct dividends received from other domestic corporations from its taxable income. Although certain limitations apply, this provision softens the effect of triple taxation if dividends were totally taxed to the consolidated corporation who then distributes again dividends to its individual shareholders.

Corporate Penalty Tax Provisions
Enacted to prevent excessive accumulations by the corporation-the reverse being no taxable distributions to its shareholders-certain special taxes, add-ons, and penalties may apply in any given tax year. A summary of these penalty taxes follows.

a. Controlled Groups. Parent-subsidiaries, brother-sister, and certain insurance companies are entitled to only one $250000 accumulated earning tax credit and are limited to the taxable income in the two lowest brackets of the corporate tax schedule. Thus, they are treated as if the entire group was one taxable corporations.  Without this provision, commonly owned companies could divide taxable income and gain extra tax rate breaks and exemptions.

b. Accumulated Earnings Tax.When the corporation cannot justify accumulations of retained earnings, it may be subject to about a forty percent penalty tax on the earnings retained which should have been distributed to shareholders in the form of dividends. This provision can be applied also against publicly traded companies under certain circumstances.  The reason for this tax is to encourage distributions to individual shareholders and the related higher individual income tax rates.

c. Alternative Minimum Tax. A twenty percent alternative minimum tax is assessed on corporations when it exceeds the regular tax liability. The calculation of this tax includes certain tax preferences and adjustments used by the corporation.

d. Personal Holding Company Penalty Tax. Some corporations are subject to this penalty tax on certain types of passive income like dividends, interest and capital gains. The purpose of this tax is to prevent individuals from accumulating these items in corporations that they own and control. This tax is almost 40% assessed in addition to the corporations regular income tax liability. Similar to the accumulated earnings penalty tax, a corporation cannot be assessed both additional taxes in the same year.

e. Unrelated Business Income Tax. Certain corporations organized under IRC Section 501c(3) are exempt from the corporate income tax provisions. However, if they generate significant income from activities not related to their core operations, then they must pay regular corporate and alternative minimum tax on such activities.

Summary
In our above discussion, we have briefly examined corporate taxation. It is clear what there are many options and pitfalls which apply to the election to conduct business as a corporation. As usual, proper tax planning and strategic vision is critical.