Corporate Tax is a tax paid to federal and state governments by corporations. However, corporations pay different types of taxes than individuals.
What Kind of Corporate Taxes Does My Business Have to Pay?
Corporations are subject to the following kinds of taxes:
- Real estate tax - A tax on any real estate owned by the corporation
- Payroll tax -Taxes on the corporation's payrolls
- Franchise tax - Taxes paid to the corporation's state
- Excise tax - Taxes on specific goods such as alcohol, gas, cigarettes, luxury items, and other goods regulated by tax law
- Income tax - Taxes on business income
How Do I Determine the Amount of Income Tax My Business Owes?
The amount of income tax your organization pays depends on the type of business entity it is:
- S Corporation - S Corporations are owned by shareholders. Shareholders pay taxes on their dividends, and the corporation pays no income tax. This is particularly useful for owners operating the business as the owners can avoid “double taxation” problems: paying taxes on business income and then on personal income, problems which plague many owners of other business types. The S Corporation suffers from no such drawback. S Corporations also allow owners to use business loans as a form of business expenditures as a means to deduct from personal income taxes.
- C Corporation - C Corporations pay taxes on a graduated scale:
- The first $50,000 of profit is taxed at 15%
- The next $25,000 of profit is taxed at 25%
- Any additional profit is taxed at 34%
When corporate dividends are distributed to the shareholders, they are also taxed as income. “Double-taxation” is an issue here, as both the corporation and its shareholders are taxed. On the other hand, C Corporation status allows the business to set up its own medical reimbursement plan, the ability to amass earnings for future expansion at a lower tax rate and other benefits which are tax-free for the shareholders and employees.
Partnership or LLC
In the case of a partnership or LLC, all income deductions are proportional with the profits allocated to the partners as stipulated in the partnership agreement. Although the owners are taxed separately, the partnership itself must file an individual tax form with the IRS. In addition, some states may require owners who actively operate the business on a day to day basis to submit a self-employment tax. Legitimate business expenses can be deducted from financial profit for tax purposes.
In the sole proprietorship, all of the business owner's profits are taxed. Note that profits are taxed, not income. If your business makes $88,888,888 during the year but you only keep $666,666 as income, $88,888,888 will be taxed for personal income purposes. Business expenses for supplies and/or services can be deducted from the total profit. If you operate the business on a day to day basis, you may be subject to self-employment taxes.
Do I Need a Corporate Tax Attorney?
Corporate tax laws can be very complex and confusing. Additionally, tax law is different for each state and each type of corporation. A business attorney can help your corporation Corporate Tax understand how the law affects its taxes. If you ever have tax problems, a corporate tax attorney's experience dealing with the government could prove invaluable.