Federal corporate tax is imposed by the Federal Government as well as by most of the state government. As the term suggests that the tax is implied on the corporations and this is one of the most significant taxes, in terms of the tax rates and its complex rules and regulations.
There are certain requirements for the entities subject to federal income tax on corporations- the business entity should not be an S corporation, it should be formed in the US or it should have its business in the US. Business entities such as such as partnerships and limited liability companies, which are not corporations, under certain conditions may be required to pay the Federal Corporate taxes. Double tax is mitigated for- the corporations which hold some percentage of shares in other corporation, by dividends received deduction; for individual shareholders, for whom the tax is implied on most dividend income. This is done at a lower rate than which is applied to other income.
Corporate tax can be termed as corporate income tax. There is a false assumption that this tax is on corporate income, which is not the case. It will be more appropriate to call it as corporate ‘profit’ tax. The tax rates for 2010 are as follows-
|
Taxable Income Over |
Not Over |
Tax Rate applicable |
|
$ 0 |
$ 50,000 |
15% |
|
$ 50,000 |
$ 75000 |
25% |
|
$ 75,000 |
$ 100,000 |
34% |
|
$ 100,000 |
$ 335,000 |
39% |
|
$ 335,000 |
$ 10,000,000 |
34% |
|
$10,000,000 |
$ 15,000,000 |
35% |
|
$ 15,000,000 |
$ 18,333,333 |
38% |
|
$18,333,333 |
………….. |
35% |
For Personal service corporations, a flat 35% tax rate is applicable regardless of their income. For personal holding companies, an additional tax of 15% is levied on any undistributed personal holding company income. There is an another term Accumulated Earnings Tax which implies that in addition to regular taxes a corporation is required to pay an additional 15% tax on accumulated taxable income of more than $250,000.The federal corporate tax return has a very similar basic structure to a set of financial statements but with the exception of statements of cash flow and notes. The corporations are required to make payments in installments of their expected tax liability each quarter.
