Corporate taxable income generally is taxed twice in the
United States: first to the corporation and then,
if and when the corporate earnings are distributed,
to its shareholders. Gross Income
A domestic corporation is taxed on its worldwide income.
Gross income for US tax purposes is broadly defined as
income from whatever source derived, and includes:
- gross
income derived from business
- gains
derived from dealings in property
- passive
income, such as interest, rents, royalties, dividends
- compensation
for services, including fees, commissions, and similar
items.
Gross income is not equivalent to gross receipts; gross
receipts must be reduced by the cost of goods sold to arrive
at gross income. Gross income can be reflected under several accounting methods,
including the accrual method and, where appropriate, the
cash receipts and disbursements method. Other methods are
available for special situations (for example, instalment
sales and percentage of completion for long-term construction
contracts). In computing cost of sales, inventories generally
must be valued at historical cost. Several inventory costing
methods are available, including the first-in, first-out
(FIFO) method and the last-in, first-out (LIFO) method. The
method of accounting used for tax purposes generally may
differ from that used for financial reporting purposes.
Deductions
Once gross income is determined, allowable deductions
are subtracted to arrive at taxable income. Computing
allowable
deductions can be difficult because of the many possible
deductions allowed under the law and because of the many
interpretative gaps that exist in the law. Generally, all
ordinary and necessary expenses of earning income are deductible.
However, a deduction for expenses payable to certain related
foreign persons generally may have to be deferred until
the foreign person reflects the payment in income
(e.g., when
received).
Tax Rates
Taxable income (gross income less deductions) of a corporation
is taxed at the following rates:
Taxable Income |
Tax |
| $0
- 50,000 |
15% |
| 50,000
-75,000 |
$7,500
+ 25% |
| 75,000
- 100,000 |
$13,750
+ 34% |
| 100,000
- 335,000 |
$22,250
+ 39% |
| 335,000
-10,000,000 |
$113,900
+ 34% |
| 10,000,000
- 15,000,000 |
$3,400,000
+ 35% |
| 15,000,000
- 18,333,333 |
$5,150,000
+ 38% |
| 18,333,333
+ |
35% |
|
|
A surtax of 5 percent is imposed on taxable income between
$100,000 and $335,000. This additional tax operates to phase
out the benefits of graduated rates below 34 percent for
corporations with taxable income in excess of $100,000. The
effect of this surtax is to tax every extra dollar of taxable
income in the $100,000 to $335,000 range at a 39-percent
rate. Additionally, a surtax of the lesser of $100,000 or
3 percent of a corporation's income over $15,000,000 is imposed.
The effect of this surtax is to tax every extra dollar of
taxable income in the $15,000,000 to $18,333,333 range at
38 percent. Capital gains generally are taxed at the same rates as other
income.
The above rates are applied to taxable income in determining
the gross amounts of tax. The tax is then reduced by allowable
credits, such as the foreign tax credit and the research
credit.
In addition, corporations are subject to the alternative
minimum tax if it is higher than the tax computed at the
regular rates. Most of the states also impose corporate income
taxes (see section on State Taxation of Corporations)
Estimated Taxes
Both foreign and domestic corporations are required to make
estimated tax payments in advance of filing their tax returns
if their estimated tax can reasonably be expected to exceed
$500 for the year. Estimated tax is defined as the expected
regular tax and alternative minimum tax liability minus tax
credits allowable (including the foreign tax credit, research
and experimentation credit, and other credits). Payments
generally are due on the fifteenth day of the fourth, sixth,
ninth, and twelfth months of the taxable year.
Penalties are imposed for underpayments of estimated tax.
Generally, no penalty will be imposed on a corporation for
underpayment of any instalment of estimated tax if the total
amount of payments of estimated tax made on or before at
the due date for such instalment equals or exceeds the total
amount that would have been required to be paid on or before
that date if the estimated tax equalled the lesser of the
following amounts:
- The
tax shown on the return for the preceding year (to
use this exception, a corporation must have filed a return
showing a tax liability in the preceding year)
- The
tax computed using current year's rates but based on
the facts shown on the return for and the law applicable
to the preceding year
- An
amount equal to at least 100 percent of the tax for the
taxable year computed by annualizing the taxable
income or applying the seasonal method.
Disclaimer
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"The
information contained herein is of a general nature and
is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and
timely information, there can be no guarantee that such information
is accurate as of the date it is received or that it
will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough
examination
of the particular situation.
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International, a Swiss cooperative.
© 2006 KPMG LLP, the
Canadian member firm of KPMG International,
a Swiss cooperative. All rights
reserved."
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