Determining Corporate Income Taxes

Saturday, July 01, 2006

The corporate income taxes that are paid by a business will depend on the type of corporation it is. For corporate tax purposes, the federal government recognizes two types of corporations:

Regular or C Corporation: This is the most common type of corporation and most public corporations can be classified as C corporations. A C corporation is required to pay corporate taxes on its business earnings. When these earnings are distributed to the shareholders as dividends, they are once again subject to taxes. Thus, in effect, a C corporation has to pay taxes at the corporate as well as the individual level, which leads to double taxation.

S Corporation: An S corporation status is generally given to small business corporations. In an S corporation, the earnings of the corporation are passed on to its shareholders, who then pay taxes on these earnings as part of their personal income taxes. Thus, an S corporation does not pay any taxes at the corporate level.