Future Business Leaders of America (FBLA) Agribusiness Practice Test

What type of corporation is taxed twice?

1. S corporation

2. Limited liability company

3. C corporation

4. Cooperative

The correct answer is: C corporation

A C corporation is taxed twice because it is subjected to what is often referred to as "double taxation." This occurs in two stages: first, when the corporation earns profits and pays corporate income taxes on those earnings; second, when dividends are distributed to shareholders, who then must pay personal income taxes on those dividends. In contrast, an S corporation allows profits to pass through to shareholders' personal tax returns, effectively avoiding the corporate level tax. A limited liability company (LLC) also typically enjoys pass-through taxation unless it elects to be taxed as a corporation. Cooperatives may operate under different taxation rules depending on their structure but generally do not experience the same double taxation as C corporations. Thus, the nature of C corporations makes them unique in experiencing this two-tier taxation process.