Corporate Taxes

Corporate Taxes Related Information:

If you are an association or a corporation, registered and running a business in the United States, then you may be required to pay Corporate Taxes. Corporate taxes are business taxes that are paid by corporations. A corporation is a separate unit from an individual and any corporation is required to pay corporate taxes separately from their owners.

Types Of Corporate Taxes

Any business or corporation may be required to pay the following types of corporate taxes:

• Payroll Taxes: This is a tax, which a corporation withholds from its employees, and pays to the federal government.
• Real Estate Taxes: A corporation may be subject to real estate taxes on any real estate owned by the business.
• Excise Tax: This tax is levied on specific kinds of products such as gas, alcohol, luxuries, etc. as specified by the tax laws.
• Income Tax: This is the tax that is paid on the business income of a corporation.

Of the different kinds of corporate taxes, corporate income tax is the main type of corporate tax that any business has to contend with. Usually, when speaking of corporate taxes, it is the corporate income tax that most people refer to.

Determining Corporate Income Taxes

The corporate income taxes that are paid by a business will depend on the type of corporation it is. For corporate tax purposes, the federal government recognizes two types of corporations:

• Regular or C Corporation: This is the most common type of corporation and most public corporations can be classified as C corporations. A C corporation is required to pay corporate taxes on its business earnings. When these earnings are distributed to the shareholders as dividends, they are once again subject to taxes. Thus, in effect, a C corporation has to pay taxes at the corporate as well as the individual level, which leads to double taxation.

• S Corporation: An S corporation status is generally given to small business corporations. In an S corporation, the earnings of the corporation are passed on to its shareholders, who then pay taxes on these earnings as part of their personal income taxes. Thus, an S corporation does not pay any taxes at the corporate level.

Federal and State Corporate Taxes

Corporations have to pay federal corporate taxes on a graduated scale (for C corporations) and at a fixed rate of 35% for S corporations. The federal corporate tax structure of the United States is what is known as a worldwide system of taxation as opposed to a territorial system. Under the worldwide system, a corporation has to pay corporate taxes, not just on its domestic income (income in the US) but also on its income earned outside the US.

Thus, if your corporation does business in the United States as well as in the UK, then you are required to pay corporate taxes on your earnings in the US, and also on your income from the UK branch. Under a territorial taxation system, a corporation is not required to pay for income earned abroad.

Apart from federal corporate taxes, businesses have to pay state corporate taxes as well. Most states in the US (apart from a few) require businesses incorporated within their state boundaries, to pay corporate taxes to the state, in addition to the ones being paid to the federal government.

Because of double taxation, federal and state taxes, and high rates of corporate tax, businesses in the United States often pay much more in corporate taxes than in other countries.