In short, a corporate income tax is a tax that all corporations owe to the IRS and is based of their income or capital. The rate of corporate income tax changes constantly, but the rate usually stays within a range of 15 to 35 percent.
The corporate tax works similarly to personal taxes. What a company owes is based off their profits, minus any deductions like expenses or interest. In the case of a corporation, advertising is also considered a deduction and the amount you spend advertising your company is a tax deduction for corporate taxes.
But just because you own a business, doesn’t mean you are subject to pay corporate taxes. In fact, only companies that classify as C corporations are required to pay this tax. That means that any sole proprietorships, partnerships or corporations that are listed as S corporations do not have to worry about the corporate income tax. Instead, these companies must include their profits in their personal income taxes and will be taxed for their earnings that way.
If you are apart of a C corporation, it’s important to know the corporate tax rate at the current time. As of this writing in 2018, the corporate tax rate for the United States is 21 percent. This is the lowest the rate has been since 1939. In the U.S., all corporations are taxed at the same rate, but the amount owed will differ depending on how big the corporation is and how much money they make, minus deductions and expenses.
As for other countries, their tax rate is usually quite similar. In 2016, the United States had the highest rate, at 35 percent, but other countries such as France, Australia and Mexico were close behind with 30-34 percent. Switzerland has the lowest rate, taxing their corporations just 8.5 percent.
Exempt from the tax are corporate events such as reorganization, acquisition or formation of a corporation. For example, if a business decides to incorporate and puts their assets into another corporation, the owners of the business nor the corporation will not be taxed for this action. This is also true if a company merges or changes their tax structure.
If you are considering incorporating your business and want to ensure you understand the corporate tax, contact the tax professionals at Levy Tax & Associates. Contact us at 1-800-TAX-LEVY or visit our website to learn more.