How is corporation taxed

Corporations may request a six-month extension to file their corporate tax returns in September. Installment payment due dates for estimated tax returns occur in the middle of April, June, September, and December. Corporate taxes are reported on Form for U.

Corporations are permitted to reduce taxable income by certain necessary and ordinary business expenditures. All current expenses required for the operation of the business are fully tax-deductible.

Investments and real estate purchased with the intent of generating income for the business are also deductible. A corporation can deduct employee salaries, health benefits, tuition reimbursement, and bonuses. In addition, a corporation can reduce its taxable income by deducting insurance premiums , travel expenses, bad debts, interest payments, sales taxes, fuel taxes, and excise taxes. Tax preparation fees, legal services, bookkeeping, and advertising costs can also be used to reduce business income.

A central issue relating to corporate taxation is the concept of double taxation. Certain corporations are taxed on the taxable income of the company. If this net income is distributed to shareholders , these individuals are forced to pay individual income taxes on the dividends received.

Instead, a business may register as an S corporation and have all income pass-through to the business owners. An S corporation does not pay corporate tax as all taxes are paid through individual tax returns.

Paying corporate taxes can be more beneficial for business owners than paying additional individual income tax. Corporate tax returns deduct medical insurance for families as well as fringe benefits, including retirement plans and tax-deferred trusts. It is easier for a corporation to deduct losses, too. A corporation may deduct the entire amount of losses while a sole proprietor must provide evidence regarding the intent to earn a profit before the losses can be deducted.

Finally, profit earned by a corporation may be left within the corporation, allowing for tax planning and potential future tax advantages. Taxable profit is the difference between total revenue, whether domestic or foreign sourced, and deductible expenses see the Deductions section , plus other assessable income.

Taxpayers are required to prepare an annual CIT return, which includes a section for making adjustments to accounting profit to arrive at taxable profit.

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