The corporate tax rate is the percentage of a corporation’s income that must be paid to the federal government as tax. The current U.S. corporate tax rate is 21%, following the passage of the Tax Cuts and Jobs Act (TCJA) in 2017. This rate applies to the net income (profit) earned by C corporations, which are separate legal entities from their owners.
Key aspects of the corporate tax rate:
- Flat rate: The 21% corporate tax rate is a flat rate, meaning all corporations pay the same percentage of their taxable income, regardless of the size of the company or the amount of income earned.
- Deductions: Corporations can deduct business expenses, including wages, rent, and depreciation, before calculating their taxable income.
- Double taxation: Income earned by a C corporation is subject to double taxation. First, the corporation pays tax on its profits at the corporate level, and then shareholders pay taxes on dividends distributed from those profits.
Some corporations may qualify for special tax treatment, such as S corporations, which pass income directly to shareholders and avoid the double taxation that affects C corporations.
Understanding the corporate tax rate and taking advantage of available deductions and credits is essential for businesses to manage their tax liability and optimize profitability.