The profits of a corporate entity are subject to corporation tax. The nominal federal corporate tax in the USA has been slashed down to a flat 21% from 35%, back in 2017. The federal, many state, and local governments collect it. Corporations must regularly file their yearly tax returns, similar to individuals.

The taxes are levied on the corporation’s operating earnings. The final calculation deducts depreciation, interest, advertising, employee compensation, operating costs, wages, research & development, and so on.

Despite its smaller size, the corporate income tax makes up for the third-largest source of income for the federal government, right behind the income tax and payroll taxes. Both US-based and foreign multinational companies pay the same amount.

Corporation tax very often leads to double taxation. In this instance, the company pays dividends to the stakeholders. Then the shareholders are bound to pay income taxes on it once again. So corporations turn themselves into S corporations. All their corporate taxes are paid via individual income taxes.

S corporations are actually flow-through entities as they are not subject to entity-level tax. But the owners should incorporate these profit margins into their taxable income. However, business owners find corporate tax payment more suitable for them as it deducts medical insurance for families and retirement plans.

The trickery of corporation tax could pull a company down. It needs careful handling. We, at Zakir CPA, PLLC, always keep your preferences ahead. Our versed tax advisors have decades of experience in the field. They know exactly what suits your cause. Be with us to lead the market with a long-term vision.