Double taxed indeed! If anything, corporations enjoy additional ways to hide their profits, which are what they are taxed on. Incidentally, those wages people pay income tax on are a deduction for the corporations. Read below:
Corporations are taxed differently than other business structures: A corporation is the only type of business that must pay its own income taxes on profits. In contrast, partnerships, sole proprietorships, and limited liability companies (LLCs) are not taxed on business profits; instead, the profits "pass through" the businesses to their owners, who report business income or losses on their personal tax returns.
Understanding Corporate Taxation
Because a corporation is a separate legal entity from its owners, the company itself is taxed on all profits that it cannot deduct as business expenses. Generally, taxable profits consist of money kept in the company to cover expenses or expansion (called "retained earnings") and profits that are distributed to the owners (shareholders) as dividends.
Tax-Deductible Expenses
To reduce taxable profits, a corporation can deduct many of its business expenses -- money the corporation spends in the legitimate pursuit of profit. In addition to start-up costs, operating expenses, and product and advertising outlays, a corporation can deduct the salaries and bonuses it pays and all of the costs associated with medical and retirement plans for employees.
Shareholder Tax Payments
If the corporation's owners work for the corporation, they pay individual income taxes on their salaries and bonuses like regular employees of any company. Salaries and bonuses are deductible business expenses, so the corporation does not pay taxes on them.
Tax on Dividends
If a corporation distributes dividends to the owners, they must report and pay personal income tax on these amounts. And because dividends, unlike salaries and bonuses, are not tax-deductible, the corporation must also pay taxes on them. This means that dividends are taxed twice -- once to the corporation and again to the shareholders. Smaller corporations rarely face this problem: Because their owners typically work for the corporation as employees, the corporation can pay them in the form of tax-deductible salaries and bonuses, rather than taxable dividends.