What Are The Corporate Tax Rates?

March 8, 2019

As the owner of a small business, it’s important to understand corporate tax rates if you opt to incorporate your enterprise. Consulting with a Los Angeles accounting firm can help you understand the tax obligations of your new company.

Changes Under the Tax Cuts and Jobs Act

Under President Trump’s 2018 Tax Cuts and Jobs Act, the corporate income tax rate was changed from a graduated schedule of 15 to 35 percent depending on earnings to a flat rate of 21 percent across the board. Corporations with a 2018 tax year that began before January 1, 2018, are taxed using a blended rate depending on the date on which the tax year began.

Other types of businesses, such as limited liability companies and S corporations, are subject to different state and federal tax laws. For example, most LLCs and sole proprietorships can deduct 20% of business income. An accountant service in Los Angeles will be familiar with the regulations that apply to your specific business structure.

Other Corporate Taxes

Most states tax corporate income, with an average tax rate of 6 percent according to the Tax Foundation. In California, corporate income is taxed at 8.84 percent. Corporations can deduct state and local income taxes from their federal income tax return.

Dividends paid to shareholders are subject to double taxation. They are taxed as income both at the corporate level and at the individual level on the shareholder’s tax return. Corporations that avoid this issue by failing to pay dividends are subject to a 20 percent accumulated earnings tax.

When both federal and state income tax are considered, the average corporation pays an overall income tax of about 25.7 percent. This does not apply to corporations in the six states that do not charge state-level income tax, however.

Corporate taxes can be complex. An Encino accountant can provide guidance for business owners who need assistance in this area.