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What Is the Company Tax Fee? Federal & State Company Tax Charges

Your organization’s tax legal responsibility largely relies on the enterprise construction you select. And in the event you construction your corporation as a company, you’re answerable for paying the company earnings tax fee on firm earnings. So, what’s the company tax fee?

How do company taxes work?

An organization, or C Corp, is a kind of enterprise construction the place house owners take pleasure in restricted legal responsibility safety. Companies are separate authorized entities, which means they’re separate from their house owners. Homeowners usually are not answerable for their companies’ actions and money owed (therefore restricted legal responsibility).

However as a result of companies are separate authorized entities, they’re topic to double taxation. The corporate itself pays taxes on its earnings and the proprietor additionally pays taxes. In different enterprise buildings (e.g., sole proprietorships), taxes go via to the proprietor so that they solely pay taxes on earnings as soon as.

How do corporate taxes work? Corporations are taxed and business owners are taxed

Should you personal a company, report its income and losses on Kind 1120, U.S. Company Revenue Tax Return. And, report your private earnings in your particular person tax return.

Companies are typically taxed at each the federal and state degree. When a company pays taxes on its taxable earnings, it should pay at a fee set by each the federal and state ranges.

So in the event you construction as a company, it’s worthwhile to know the company tax charges.

Incorrectly calculating your tax legal responsibility is one mistake you don’t wish to make.

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What are company tax charges?

Once more, there are each federal and state company tax charges. The federal company tax fee is a flat fee that applies to all companies. Then again, state tax charges range by state. So, how a lot are company taxes? 

Federal company earnings tax fee

First issues first: what’s the federal company tax fee? The present company tax fee (federal) is 21%, because of the Tax Cuts and Jobs Act of 2017. 

Previous to the Tax Cuts and Jobs Act, there have been taxable earnings brackets. The utmost tax fee was 35%.

The company tax fee applies to your corporation’s taxable earnings, which is your income minus bills (e.g., price of products bought).

Federal Company Tax Fee Instance

Let’s say you will have annual revenues of $250,000 and qualifying bills of $55,000. You wish to work out how a lot you owe in federal taxes.

First, subtract your bills from annual revenues:

Taxable Revenue = $250,000 – $55,000  

Taxable Revenue = $195,000 

Subsequent, multiply the federal company tax fee of 21% (0.21) by your taxable earnings:

$195,000 X 0.21 = $40,950

You’ll owe $40,950 in federal company taxes.

State C Corp tax charges

Most states set a company tax fee along with the federal fee. State company earnings tax charges vary from 0% – 9.99%. However, not all states levy a company tax fee.

The next states do not need a state company tax fee:

  1. Nevada
  2. Ohio
  3. South Dakota
  4. Texas
  5. Washington
  6. Wyoming

Nevada, Ohio, Texas, and Washington levy gross receipts taxes on companies as an alternative of company taxes. A gross receipts tax is a tax on a enterprise’s gross receipts, which incorporates the enterprise’s whole income with out deductions (e.g., working bills). 

South Dakota and Wyoming do not need state company earnings taxes in any respect. 

Remember the fact that some states have each company earnings tax and gross receipts tax. 

Some states apply a flat tax to all companies whereas others use brackets. The states with brackets apply tax charges based mostly on the company’s taxable earnings.

Use the chart under to seek out company tax charges by state:

State State Company Tax Fee
Alabama 6.5%
Alaska 0% – 9.4%
Arizona 4.9%
Arkansas 1% – 5.9%
California 8.84%
Colorado 4.55%
Connecticut 7.5%
D.C. 8.25%
Delaware 8.7%
Florida 5.5%
Georgia 5.75%
Hawaii 4.4% – 6.4%
Idaho 5.8%
Illinois 7% (+2.5% substitute tax)
Indiana 4.9%
Iowa 5.5% – 8.4%
Kansas 4%-7%
Kentucky 5%
Louisiana 3.5% – 7.5%
Maine 3.5% – 8.93%
Maryland 8.25%
Massachusetts 8%
Michigan 6%
Minnesota 9.8%
Mississippi 4% – 5%
Missouri 4%
Montana 6.75%
Nebraska 5.58% – 7.25%
Nevada N/A 
New Hampshire 7.6%
New Jersey 6.5% – 9%
New Mexico 4.8% – 5.9%
New York 6.5% – 7.25%
North Carolina 2.5%
North Dakota 1.41% – 4.31%
Ohio N/A
Oklahoma 4%
Oregon 6.6% – 7.6%
Pennsylvania 8.99%
Rhode Island 7%
South Carolina 5%
South Dakota N/A
Tennessee 6.5%
Texas N/A
Utah 4.85%
Vermont 6% – 8.5%
Virginia 6%
Washington N/A
West Virginia 6.5%
Wisconsin  7.9%
Wyoming N/A

Contact your state for extra info in your company tax fee.

How you can lower your company earnings tax legal responsibility 

You possibly can cut back your company tax legal responsibility by deducting qualifying enterprise bills out of your taxable earnings.

You possibly can deduct issues like:

One other method you’ll be able to change up your tax legal responsibility is by selecting a enterprise construction that doesn’t impose double taxation. For instance, structuring as an S company is an alternative choice to structuring as a C Corp.

This text has been up to date from its unique publication date of August 13, 2019.

This isn’t meant as authorized recommendation; for extra info, please click on right here.



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