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FORMS AND INSTRUCTIONS
FORM 1120
U.S. Corporation Income Tax Return
FORM 1120 INSTRUCTIONS
Alabama : 6.5%
Alaska : 1~9.4%
Arizona : 6.968%
Arkansas : 1~6.5%
California : 8.84%
Colorado : 4.63%
Connecticut : 7.5%
D.C: 9.975%
Delaware: 8.7%
Florida : 5.5%
Georgia : 6%
Hawaii : 4.4%~6.4%
Idaho : 7.6%
Illinois : 7.0% income tax and (2.5% replacement tax)
Indiana : 6.5%
Iowa : 6%~12%
Kansas : 4~7%
Kentucky : 4~6%
Louisiana : 4%~8%
Maine : 3.5%~8.93%
Maryland : 8.25%
Massachusetts : 8.25%
Michigan : None (Receipt Tax)
Minnesota : 9.8%
Mississippi : 3%~5%
Missouri : 6.25%
Montana : 6.75%
Nebraska : 5.58%~7.81%
Nevada : None
New Hampshire : 8.5%
New Jersey : 9%
New Mexico : 4.8%~7.6%
New York : 7.1%
North Carolina : 6.9%
North Dakota : 2.1%~6.4%
Ohio : None (Receipt Tax)
Oklahoma : 6%
Oregon : 6.6%~7.6%
Pennsylvania : 9.99%
Rhode Island : 9%
South Carolina : 5%
South Dakota : None
Tennessee : 6.5%
Texas : None (Receipt Tax)
Utah : 5%
Vermont : 6%~8.5%
Virginia : 6%
Washington : None (Receipt Tax)
West Virginia : 8.5%
Wisconsin : 7.9%
Wyoming : None
Corporate taxes in the United States are a direct tax imposed on the profits of all businesses, except non profit businesses, such as charities. Corporate taxes can include capital gain taxes on any profit from the sale of items such as used businesses supplies. A corporate tax is levied after the business subtracts expenses from their profits.
Generally, a business will have to pay a corporate tax to the federal government and to their state’s government. Federal corporate taxes are imposed according to specific standards. However, state corporate taxes are different within each jurisdiction. Each state’s tax laws will allow different deductions as well as taxing businesses at differing rates. State corporate taxes are generally much lower than those imposed by the federal government.
Most businesses will be subject to corporate taxes. There are some exceptions and those exceptions can vary according to each state’s tax laws. In fact, some businesses may be required to pay federal corporate taxes but not a state corporate tax. Some foreign companies may even have to pay a corporate tax to the United States, depending on trade and employment factors. Foreign companies that operate a Branch within the United States, must pay income taxes on profits for that branch.
The distinction of what qualifies as a branch, will vary based on several factors. A sole employee that works from home, will likely not be counted as a branch but they may be if they make a certain percentage of profits for the foreign company. Many employees that receive dividends as part of a salary, or retirement package, must also pay taxes on those dividends. Many people claim that factor represents a double taxation on income. In that case, the employer and the employee pay a tax on the dividend.
Corporate tax rates are determined based on many factors. Companies are taxed according to their profit margin. For example, a company that makes a profit of fifty thousand dollars may be taxed at twenty fiver percent, where a company that makes a profit of one hundred thousand dollars, will be taxed at a rate of thirty four percent.
Corporations in the United States, are often expected to make estimated tax payments four times a year. Their corporate taxes due at the end of that tax year, will be adjusted accordingly. Those payments are really no different than individual tax payers having taxes taken out of their paycheck, in order to put money towards their estimate income tax.
Corporate Income Tax at a Glance
As corporate businesses continue to expand and contribute to local and national economies, governments across the world seek ways to finance public goods and services. In most countries, one of the major revenue sources for governments is corporate income tax (CIT). This article provides a comprehensive overview of CIT, including its definition, the logic behind its implementation, calculation methods, CIT rates, and recent trends in CIT policies.
Definition and Rationale
Corporate income tax (CIT) is a tax on the net income of corporations, including their domestic and foreign affiliates, partnerships, and other legally recognized entities that are involved in business activities. The income that is subject to CIT typically includes revenue from goods sold, services rendered, investments, and other capital gains, minus the expenses related to the production of income, such as salaries, rent, material costs, and interest payments.
CIT serves several economic and social purposes. First, it generates revenue for governments, which enables them to provide public goods and services, such as education, healthcare, infrastructure, and security, that contribute to economic growth and social welfare. Second, CIT reduces income inequality by transferring resources from corporations to governments, which can be used to finance social programs that benefit lower-income households. Third, CIT incentivizes corporations to use their resources efficiently by encouraging them to focus on profitable business activities that generate value for consumers and the economy as a whole.
Calculation of CIT
The calculation of CIT involves several steps. First, corporations need to determine their gross income, which is usually calculated by adding up their sales revenue, interest income, dividends, rent, royalties, and other types of income. Second, corporations need to deduct their operating expenses, such as salaries, rent, utilities, material costs, and advertising expenses, from their gross income to obtain their net income. Third, corporations need to calculate their taxable income by subtracting their deductions and applying any exemptions, credits, or other tax incentives that they might be eligible for. Finally, corporations need to apply the CIT rate to their taxable income to determine the amount of tax that they owe.
CIT Rates
CIT rates vary widely across countries, and they are influenced by several factors, such as the level of economic development, the size of the corporate sector, the political climate, and the balance between revenue generation and competitiveness. According to data from the Organization for Economic Cooperation and Development (OECD), the average statutory CIT rate among its 37 member countries was 23.5% in 2021. However, some countries have much lower or higher CIT rates.
For example, the Cayman Islands, a British overseas territory and a popular offshore tax haven, has a zero percent CIT rate. Many other offshore jurisdictions, such as Bermuda, the British Virgin Islands, and the Seychelles, also have low or no CIT rates, which attract foreign investors and multinational corporations. On the other hand, some countries that are known for their high tax rates, such as Denmark, France, and Japan, have CIT rates above 30%.
Recent Trends in CIT Policies
In recent years, global CIT policies have undergone significant changes, driven by various economic, political, and social factors. Some of the key trends are discussed below.
Lowering CIT Rates: Some countries have decided to lower their CIT rates to attract foreign investment, boost economic growth, and remain competitive in the global market. For example, the United States decreased its statutory CIT rate from 35% to 21% in 2018 as part of the Tax Cuts and Jobs Act. Similarly, Ireland, another country that has attracted many foreign companies due to its low CIT rate, announced plans to reduce its CIT rate from 12.5% to 8.5% for certain businesses in 2021.
Digital Taxation: The rise of digital technologies and services has led to a debate about how to tax multinational digital corporations, which often have little physical presence in the countries where they generate revenue. Some countries, such as France and Germany, have introduced digital services taxes (DSTs) on revenues from digital advertising, data management, and other online activities. However, these measures have been criticized by the United States, which argues that DSTs unfairly target American tech giants, and could lead to retaliatory measures.
International Taxation: The global nature of corporate business has created challenges for the taxation of cross-border transactions, which often involve complex legal structures and shifting profits to low-tax jurisdictions. To address these issues, many countries are participating in international efforts to reform the taxation system for multinational corporations. One such effort is the Base Erosion and Profit Shifting (BEPS) project, which was launched by the OECD in 2013 and aims to prevent aggressive tax planning and ensure that profits are taxed where economic activities take place.
Conclusion
Corporate income tax is an essential tool for governments to finance public goods and services, reduce income inequality, and incentivize corporations to use their resources efficiently. The calculation of CIT involves determining gross income, operating expenses, taxable income, and applying the CIT rate. CIT rates vary widely across countries, and they are influenced by several factors, such as economic development, political climate, and competitiveness. Recent trends in CIT policies include lowering CIT rates, digital taxation, and international taxation, all of which aim to address the challenges of the modern global economy.
