¶ … Entrepreneurs Should Know About Federal Taxes for Corporations
All corporations are subject to the corporate income tax on their net income. Taxable income is the gross income of the corporation, less the deductions allowed. Major sources of corporate income include: gross profits from sales; dividends received; interest; rents; royalties; and gains and losses. Still, there can be other factors that must also be considered in determining the corporation's income. There include: receipts that are actually contributions to capital; property distributions received by the corporation; rentals paid to shareholders of a leasing corporation; and income from a sinking fund.
Each business's tax liability is based on a graduated tax rate scale. Depending on individual factors, a corporation may also be subject to penalty taxes in addition to their regular income tax. The form of business that is operated determines what taxes must be paid. The four general kinds of business taxes are: income tax, self-employment tax, employment taxes and excise taxes. (see Appendix A)
Corporate Taxes
Most corporations must make estimated tax payments for the business if it will owe tax of $500 or more when it files its return. Form 1120-W, Estimated Tax for Corporations, is generally used to figure the estimated tax.
However, the fact that many different types of corporations exist make corporate taxes more complicated. For example, one corporation's stock may be publicly traded while only a few shareholders own another's stock. Some corporations are not-for-profit entities. In addition, there are also S Corporations and limited liability companies.
Corporations are corporations for legal purposes but treated as flow-through entities for tax purposes. This helps avoid the double taxation problem inflicted on regular corporations. The limited liability company (LLC) enjoys greater flexibility with regard to the capital structure and organization of the business.
A regular corporation (C corporation) is a separate legal entity that pays its own tax. AC corporation distributes profits to shareholders in the form of dividend distributions. Since these distributions are not tax deductible, the issue of double taxation rears its ugly head.
Taxes and Penalties
Corporations are subject to double taxation. The corporation, when...
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