Corporate Taxes

Corporations are legal entities people create for business purposes. They range in size from small, privately held entities to massive, multinational behemoths. Most governments tax corporations to raise money. As the owner of a small corporation, you must understand how corporate taxes work. If you don’t, you could be in trouble with government tax authorities.

Corporate taxes are complex. Not only do you have federal taxes to worry about, but you likely also have state and local taxes to deal with. Talking to a business tax attorney in your area is a good idea. They can explain the tax laws. They can also give you tax advice about your specific situation.

What Are Corporate Taxes?

A corporate tax is a business tax paid on a corporation’s profits. However, certain types of organizations are exempt from the tax. In the U.S., the federal corporate income tax rate is 21%. You can lower the tax using tax credits, deductions, and subsidies. So, the effective tax rate is often lower than 21%. State and local governments may also impose a corporate tax.

Nonprofit organizations are the most common type of tax-exempt organization. These are companies created to do work that serves the public good. Examples of the public good include charitable, educational, and scientific work. Their profits are not taxed, but they’re limited in what they can do with those profits.

Companies can deduct certain expenses. Examples include employee benefits like medical insurance and retirement plans. They can also deduct employee salaries, including some executive compensation. Investments, like real estate the corporation buys to generate income, are also deductible. In the U.S., corporate income tax returns are due by the 15th day of the fourth month after the end of the company’s tax year.

The corporate income tax isn’t the only tax a corporation must pay. They also pay the following taxes:

• Payroll
• Unemployment
• Workers’ compensation
• Capital gains
• Property
• Dividend

What Happens if a Corporation Doesn’t Pay Its Taxes?

The Internal Revenue Service (IRS) enforces federal tax laws in the U.S. That includes collecting tax payments, performing audits, and imposing penalties for non-payment. The IRS can impose fines and other penalties if a corporation doesn’t pay its taxes. The agency’s first step is creating a payment plan. If that doesn’t work, the IRS can put a lien on corporate property. It can also garnish profits.

Sometimes, a corporation will go out of business with unpaid taxes. In that case, the IRS can try to recover the unpaid taxes from employees. Generally, the IRS will look to employees responsible for paying taxes. Examples include the chief financial officer or head of accounting.

When Do I Need a Lawyer’s Help?

There are a wide range of tax matters you may need help with. Corporate tax lawyers and certified public accountants (CPAs) are tax professionals who can help with tax issues. Lawyers and CPAs focus on different tax-related areas. Whether you need a lawyer or a CPA depends on the specific problem you’re having.

CPAs focus on maintaining your corporation’s financial records and filing its taxes. They make the corporation’s financial statements. CPAs may also participate in tax planning to reduce the corporation’s tax liability.

Corporate tax lawyers provide legal services. They can explain the U.S. tax code to you. They can also help you with tax disputes. You often need a lawyer when you’re involved in tax litigation or dealing with the tax court.

Attorneys can help a corporation structure transactions to maximize tax benefits. They can also help with cross-border transactions.

Most large national law firms have a tax practice focusing on federal tax laws. Smaller, more regional firms may have a tax practice area focusing more on state and local taxes.

Talking to a corporate tax lawyer is a good idea if you must pay corporate taxes. They can help you understand the tax laws. They can also help if you have a tax dispute.