What Is Corporate Tax?
A corporate tax is a tax on the profits of a corporation. The taxes are paid on a company's taxable income, which includes revenue minus cost of goods sold (COGS), general and administrative (G&A) expenses, selling and marketing, research and development, depreciation, and other operating costs.
Corporations are generally taxed at both the federal and state level. When a corporation pays taxes on its taxable income, it must pay at a rate set by both the federal and state levels.
what is Federal corporate income tax rate applicable in USA?
First things first: what is the federal corporate tax rate? The current corporate tax rate (federal) is 21%, thanks to the Tax Cuts and Jobs Act of 2017.
Prior to the Tax Cuts and Jobs Act, there were taxable income brackets. The maximum tax rate was 35%.
The corporate tax rate applies to your business’s taxable income, which is your revenue minus expenses (e.g., cost of goods sold).
Federal Corporate Tax Rate Example
Let’s say you have annual revenues of $250,000 and qualifying expenses of $55,000. You want to figure out how much you owe in federal taxes.
-First, subtract your expenses from annual revenues:
-Taxable Income = $250,000 – $55,000
-Taxable Income = $195,000
-Next, multiply the federal corporate tax rate of 21% (0.21) by your taxable income:
-$195,000 X 0.21 = $40,950
-You would owe $40,950 in federal corporate taxes.
What is State C Corp tax rates in USA?
Most states set a corporate tax rate in addition to the federal rate. State corporate income tax rates range from 0% – 9.99%. But, not all states levy a corporation tax rate.
The following states do not have a state corporate tax rate:
1. Nevada
2. Ohio
3. South Dakota
4. Texas
5. Washington
6. Wyoming
KEY TAKEWAYS:-
· Corporate taxes are collected by the government as a source of income.
· Taxes are based on taxable income after expenses have been deducted.
· The corporate tax rate in the United States is currently at a flat rate of 21%. Before the Trump tax reforms of 2017, the corporate tax rate was 35%.
· A company can register as an S corporation to avoid double taxation. An S corporation does not pay corporate tax as the income passes through to business owners who are taxed through their individual tax returns.
What are Corporate Tax Deductions?
Corporations are permitted to reduce taxable income by certain necessary and ordinary business expenditures. All current expenses required for the operation of the business are fully tax-deductible. Investments and real estate purchased with the intent of generating income for the business are also deductible.
A corporation can deduct employee salaries, health benefits, tuition reimbursement, and bonuses. In addition, a corporation can reduce its taxable income by deducting insurance premiums, travel expenses, bad debts, interest payments, sales taxes, fuel taxes, and excise taxes. Tax preparation fees, legal services, bookkeeping, and advertising costs can also be used to reduce business income.
Advantages of a Corporate Tax?
Paying corporate taxes can be more beneficial for business owners than paying additional individual income tax. Corporate tax returns deduct medical insurance for families as well as fringe benefits, including retirement plans and tax-deferred trusts. It is easier for a corporation to deduct losses, too.
A corporation may deduct the entire amount of losses while a sole proprietor must provide evidence regarding the intent to earn a profit before the losses can be deducted. Finally, profit earned by a corporation may be left within the corporation, allowing for tax planning and potential future tax advantages.
This article is written by Ms. Shivangi Sharma and Anupama Tripathi of Team Eidos Professional for the purpose of comment and knowledge, for more information you can connect with us#8800839633 or mail us #csanupamatripathi121@gmail.com
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