The Characteristics Of U.s. Corporate Tax

By Author: Josep Guardiola
Total Articles: 48
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When you run a business you need to be clear on matters of business taxation. Like all countries the US imposes a tax on the profit that the US corporations make and the rates vary from fifteen to thirty five percent. Much of the corporate income is often taxed at the minimum rate. Those who are corporate shareholders even pay individual income tax on the dividend as well as on the capital gains that they realize from the sale of the shares. The tax rate on dividends as well as on capital gains can go up to fifteen percent at a maximum. Both are scheduled to revert back to the levels that they existed in the period before 2001.

History

As per the federal revenue the following are the characteristics of the corporate income tax:

• This is the third largest source of revenue for the federal resources after the individual income tax and taxes collected from payroll

• The importance of the tax declined as a source of revenue between the period of the fifties and eighties

• Corporate tax accounts for two percent of the GDP in the US

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... the calculation of the corporate profits that are taxable one needs to equal the receipts of the corporation minus the expenses that it incurs. That includes the wages and the interest. The deductions of the inventory costs as well as depreciation of capital investments also need to be subtracted. Often many multinational corporations have their presence in other countries too and in that case nonresident tax may also come into the picture. The tax that one pays on the profits made on subsidies of foreign origin is deferred till the profits are repatriated or paid back in the form of dividends to the US parent company. The nonresident tax that may apply is usually at the individual level and not at the corporate level.

Different Features

There are other peculiar characteristics of the US corporate tax setup. For instance, there is little mechanism to prevent individuals from collecting income that is tax free within corporate. This is however discouraged as the corporate profits are taxed twice, once to the corporation and then again on the profits given out to shareholders. Again, another feature of the tax structure is that it encourages debt financing as compared to equity financing. That is mainly because the interest payments that are made by corporate are deductible while the dividends that are gained are not. Thus, it encourages corporations to retain their earnings than giving it out as dividends. Many organizations in the US are categorized as “flow through” businesses and they do not come under the purview of corporate tax.

These include partnerships or sole proprietor businesses. That is mainly because here the business owners are taxed at an individual level. At such levels nonresident tax may become applicable if they make earnings from a state that they are not resident of. It is usually calculated as a percentage of the total federal tax returns filed.

About Author:-

Josep Guardiola is a Toronto tax specialist, who practices as an independent tax consultant. He is providing lots of information about how to manage tax. In this article you can find details information about nonresident tax. For more information visit taxca.com.