Simply put, corporate tax is the tax levied on the profits of a corporation. The taxes are calculated using the corporation's taxable income, which is the cost of goods sold, selling and marketing, administrative expenses, depreciation, research and development, and any other operating expenses subtracted from the gross revenue generated. These taxes vary greatly throughout the world, and some countries are known as tax havens due to their extremely low rates. The corporate tax burden can be diminished by deductions, loopholes, and government subsidies, so the rate a corporation really pays, known as the effective corporate tax rate, is often lower than the legally mandated rate.
Types of Corporations
"Corporate Taxes" licensed under CC BY-SA 2.0 via Flickr by wellness_photos Discussion of corporate tax has to involve the various types of corporate structures, as that also impacts the tax levied upon the corporation. There are five main types of corporate structures: C corporations, S corporations, B corporations, closed corporations, and non-profit corporations, with advantages and disadvantages to each. The C corporation is probably the most common type of corporation. A C-corp can have as many shareholders as possible, and the taxation is done on its income as a standalone entity. In turn, the shareholders also pay taxes on the dividends received from the company. This is often referred to as double taxation. A benefit of the C-Corp is personal liability protection from issues arising due to litigation or business debts. A C-corp has stocks and the percentage of overall stocks you own determines the percentage of your ownership in the corporation. Stocks are easily bought and sold through the various stock exchanges. Next are the S corporations, which are similar to C-Corps in that the personal liability is limited, but the issue of double taxation is avoided. S-Corps are known as pass-through entities, meaning all deductions, credits, income, and losses filter through to the individual shareholders and are reported on their tax returns instead of the corporation being taxed as its own entity. An S-Corp must have only U.S. citizens as shareholders, not other corporations, partnerships, or non-residents of the country. S-Corps are also limited to one class of stock and 100 shareholders. A certified benefit corporation, also known as a B corporation, is created to benefit society, but as a for-profit business. B-Corps are relatively new and are, in essence, a designation for C-Corps and S-Corps, stating they're legally bound and dedicated to the betterment of society and the environment. Rigorous standards are in place that must be met to be considered a B-Corp. A few such standards are a minimum score of 80 on the B Impact Assessment, a legal commitment to shareholders and society as a whole, and publicly reporting your scores at BCorporation.net. B-Corps maintain their original C-Corp or S-Corp standing in addition to being a B-Corp. A closed corporation is a privately held business with only a few shareholders, such as a private corporation, incorporated partnership, or incorporated family business. Shares are not publicly traded, which complicates the selling of stock to raise capital, but the owners still maintain the limited personal liability that comes with incorporating. A non-profit corporation incorporates for charitable, religious, educational, political, social, scientific, or other benevolent reasons. This type of corporation also has very strict requirements set on it. A non-profit corporation cannot distribute profits to its stakeholders, directors, or officers, but it can pay wages or compensation for work performed and services provided. Non-profit organizations can file as such with state and federal governments, granting them tax-exempt status.