The basic federal tax rates for corporations as of 2015 are:
- Up to $50,000 15%
- $50,000 to $75000 25%
- $75,000.00 to $10,000,000 34%
- Over $10,000,000 35%
The accounting methods used are generally either cash or accrual. Most individuals use the cash method as do most small business corporations. If a corporation’s gross receipts (as distinguished from gross income) exceeds $5 million, the use of accrual method is required, with some exception. The corporation then pays directors, officers, other employees and shareholders, who pay tax on what they receive. The corporation may accumulate earnings and profits and use these for its business purposes. The result is that all of the earnings and profits need not be distributed to shareholders, thus saving the tax that would result if all earnings and profits were distributed. Generally, dividends paid to shareholders are taxed unless they represent return of capital investment. If a return of capital exceeds basis it may be taxed as a capital gain. The tax rate for 2015 on such dividends is 20%, up from 15% through 2012. The corporation may limit salaries to high income employees and officers and further provide fringe benefits such as exempt employee retirement and pension plans, group life insurance up to $50,000, use of a company car(employer must elect and notify employee), moving expenses, achievement awards, some education benefits, child care and some small employee discounts, and as a result, save on social security and Medicare withholding.
Federal Tax Rates For Corporations – The balance of income and profits that the corporation wishes to distribute can be in the form of a dividend with the tax at 20%. There is, however, no pass through of losses to the shareholders. In addition to tax and withholding benefit, an advantage of this form is ease of raising capital. The Corporation sells shares. These equity holders are not entitled to be repaid their investment. If the business profits they may be entitled to receive dividends. If it fails they may lose part or all of the investment on its liquidation. Owners, typically are not exposed to liability for the contracts or activities of the corporation. They are only liable for the amount of their subscription to purchase shares. In other words, they are liable only to the extent of their investment. Another benefit of this form is ease of adding owners. Just sell more shares. These equity owners do not participate in management and they may be numerous. There is no limit to the number of shareholders. They elect directors, who in turn employ officers, who in turn hire other employees to carry on the business affairs of the corporation.
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