Corporate Tax Rates
Corporate Income Tax
In many countries, corporations are liable to pay corporate income tax or corporate tax based on a set tax rate system provided for by the government and/or other tax collecting entities such as the Internal Revenue Service or IRS in the United States. It includes federal income tax and other forms of taxes at an entity level in a specific jurisdiction.
The corporate tax system is quite similar to the tax laws implemented for individual taxpayers. It also has differences depending on the nature of the business, much like the differences in the nature of jobs or field of expertise of an individual taxpayer. Like in any type of federal income tax, corporate tax is imposed after all calculations to determine the taxable income of a corporation.
Corporate tax is the total gross income including sales and sources of income minus all the allowed various tax exemptions as well as the cost of goods sold. The only thing different between corporate tax and individual federal income tax is the standard deductions, which is only applicable to individual taxpayers.
During the fiscal period, a list of applicable and approved tax credits, tax deductions and tax exemption for corporate tax are also provided to aid in coming out with a well-organized net income for before filing. An example of some non-taxable items would be expenses used for corporate events or corporate transactions such as reorganization, formation, different types of mergers, liquidations and acquisitions of a corporation.
Tax credits reduce federal income tax. Corporations may also be subjected to foreign income tax and may also be given foreign tax credit if operating offshore or have branches in other countries. Tax credits are granted to taxpayers for income taxes paid in other countries and are limited to that part of federal income tax before other kinds of tax credits made by foreign source taxable income. This is a feature included on the tax law since 1918 to mitigate the taxes incurred by the same income and/or taxpayer by two or more countries.
There are some corporate income tax systems that allow financing costs as well as items categorized as “interests” as tax deductions that have been incurred in making several business activities. However, it has limitations like when interest expense is paid to foreign shareholders based on an intricate sort of calculation that is intended to limit the deduction to a cash flow of fifty percent.
The largest tax deductions on corporate tax are drawn from qualified research expenses, research and experimental expenses, excluded interest on public purpose on local and state government debt, reduced rates for the first ten million dollars of corporate income tax, inventory of property sales, active income of controlled foreign corporations, low-income housing, investment income on annuity contracts and life insurance, income from domestic production activities, and depreciation of equipment.
The differences in corporate tax exemptions are dependent on the timing of income or deductions. For big corporations, these differences are disclosed in great detail on Schedule M-3 to IRS Form 1120.
Additional corporate tax is sometimes imposed on shareholders, owners or members of business corporations on distribution of earnings as dividends or further distributions granted by the corporate entity to its members except for shareholders in mutual funds or S Corporations, which are taxed on the corporate income and not on dividends.
Corporate tax rates differ per jurisdiction as state and local rules varies. It may vary from fifteen percent to thirty-five percent. Much like local income tax, state corporate tax rates are considered to be deductible expenses for federal income tax reasons.
As of 2011, for regular income tax, a multilevel tax rate structure that has eight taxable income brackets that starts with 15% tax rate for zero to $50,000 taxable income. It goes on to a flat corporate tax rate of 34% from a $335,000 to $10,000,000 taxable income bracket and it increases to 35% for income more than $18,333,333.
Apart from federal income tax, corporations are also liable for payroll tax, excise tax, property tax, value added tax, customs duties, and other general taxes that are similarly applicable to other taxpayers. Corporations may also be subjected to withholding tax based on payments made to other entities. Penalties may be imposed if the corporation’s employees and/or officers fail to recompense and withhold such taxes.
Federal income tax varies and tends to change from time to time as the government is constantly finding ways in making the tax code more justifiable. The tax code has been an ongoing debate between political parties, too, using it as a means to garner more votes during elections.
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