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Taxes are an unavoidable part of running any business or corporation, regardless of where in the world the corporation exists or functions. In-depth knowledge about taxes and how corporations are taxed is essential for the financial wellbeing of the corporation itself. One must note that, depending on the kind of corporation, the taxes that are levied differ. Also, LLCs might be taxed differently as well. You can learn more about LLCs and how to start one on llcguys.com. But now let’s Dig deeper into corporations.
Different Kind of Corporations
Here is a brief idea about the two types of corporations that exist. Knowing this is important so as to understand more about the taxes that each kind has to pay.
Corporations are either S type or C type. A C type corporation is a classic big corporate. This type of corporation can be formed without the filling of extra documentation. On the other hand, a S corporation has to file in an election after its formation with the IRS. Moreover, this filling with the IRS must be done between 15 days and 60 days of the formation of the corporation. This kind of corporation is smaller in size than a C corporation. It has a maximum of 100 shareholders and only one variety of stock.
The tax levying and filling on both of these corporations is different. To understand the complete nitty-gritty of each kind of corporation and the taxes they need to pay in detail, you will need to get in touch with an experienced tax attorney like the Law Office of Stanton D. Goldberg. These experts can help you with their expert advice and clear all your doubts.
S Corporation Taxes
This kind of corporation does not pay any kind of income tax themselves. The profit or loss is passed on to the shareholders. Then they are taxed of this income earned at the personal rates or can claim a refund on the loss they have suffered.
C Corporation Taxes
Just like any individual has to pay taxes on their earnings, similarly, a C Corp. has to pay taxes on their profits. This kind of corporation must send its net earning details regularly to the IRS. This is the earnings after operational and business expenses are removed, or what it pays out to its shareholders.
They must file taxes every quarter after calculating profits and pay the tax that is due. Costs incurred like salaries of the employees, employee benefits paid out, expenses of running the business, cost of supplies purchased, the fee paid for services that the corporation used, day to day operational costs and expenses on advertising, marketing, can be deducted from the gross income of the corporation in order to reach the actual taxable income.
As per the US laws, the C Corp Tax rate as per the Federal law is 35%. This may vary depending on the state or location.
What is Double Taxation?
A common complain with the laws related to C corporation tax is double taxation. Double taxation refers to the fact that the corporation pays taxes based on their net profits and then give out dividends to their shareholders, who again have to pay tax on this earning, as it is part of their earnings. So, there is a double tax levied on the money. The good thing is that smaller C corporations do not pay out dividends to their shareholders. Their shareholders are mostly their own employees, whose bonuses and salaries are taxable and deducted at source by the corporation itself.
If you want to learn more about how corporations are taxed and how you can solve IRS tax problems, you should get in touch with a qualified and experienced tax attorney without any delay.