Corporate income tax is much the same as personal income tax. Corporate income tax is based on its profit. Business taxes are paid annually. Business taxes give money to the government. This money helps fund social programs and administration. Personal taxes fund the same. Business tax ranks third as a source of funds for our government.
How are corporate taxes calculated?
Businesses are taxed based on profit for the most part. Taxable profits are the total income of the business minus deductions. This formula sounds simple. Tax rules and laws muddy the water.
All businesses must file federal income tax. Some may have to file state and local tax as well. There are two kinds of business tax, C corporations and pass-throughs.
The best known kind is the C corporation. The Tax Cuts and Jobs Act of 2018 tried to simplify this category. It gives a flat rate of 21% to all C Corporations. A business that has chosen to be a C corporation has two separate types of tax. First, a corporation pays taxes as an entity on its profits. Second, the shareholders pay taxes on their dividends. There are two separate types of dividends, Qualified and Unqualified dividends. Qualified are taxed at the capital gains tax rate and unqualified are sometimes called ordinary because they are taxed at the regular income tax rate. A C Corporation can be a multi-billion dollar business or as small as a single lawyer.