Which option correctly describes the tax obligations of a corporation?

The statement that corporations face double taxation on income accurately captures a fundamental aspect of corporate tax obligations. In the context of corporate taxation, double taxation refers to the fact that a corporation is taxed on its profits at the corporate tax rate. Following this, when those profits are distributed to shareholders as dividends, the shareholders are then taxed again on the income received. This dual layer of taxation is a defining characteristic of how most corporations are treated under the U.S. tax system.

Understanding this concept is crucial for grasping the financial implications for both the corporation and its shareholders. Shareholders receive dividends after the corporation has already paid taxes on its profits, leading to the total income being taxed at two different levels: first at the corporate level and then again at the individual level when dividends are paid out.

The other options do not accurately reflect the tax structure applied to corporations. For example, shareholders being taxed only on salaries overlooks the income they generate from dividends, while saying profits are taxed only at the shareholder level ignores the initial taxation at the corporate level. Lastly, the claim that corporations do not pay any tax on income is incorrect, as corporations are subject to taxation on their profits initially.