Question

How to calculate taxable income for a C corporation ?

Answer 1

Definition of C corporation: It is an entity formed under the law of United States. The entity is independent of its owners, whose ownership comes in the form of shares of stock. To calculate the tax liability of a Subchapter C Corporation, you must follow the following:

a) Calculate the business's total revenue. This includes revenue from its normal operations, as well as revenue from investments. For instance, a hotel chain should count the total amount of payment it receives for the room rentals and other hotel services, as well as any money it has earned on the sale of real estate or other investments. Appreciation of investment is taxable only when the asset is actually sold.

b) Calculate the total non-capital business expenses for the period under assessment. Such expenses can include any ordinary and necessary payments made for products or services necessary for business operations, such as payroll expenses, purchases of inventory, payments of interest on loans taken etc. This amount is directly deductible from gross revenue.

c) Calculate total capital business expenses. Such expenses include purchase of assets with a useful lives of one year or more. Examples leasehold improvement, vehicles, machineries for manufacturing and office equipments and computers. The deductions can be claimed for the depreciation of such assets which is calculated based on the useful lives of the assets.

d) Sum up capital and non-capital expenses and find the difference between this number and total business revenue. If expenses exceed revenue, the corporation has incurred a loss, and it does not have any tax liability for the given period. After calculating expenses, subtract any other applicable deductions from the corporation's taxable income as well, such as state taxes the corporation has paid and donations to qualifying charities.

e) Calculate the percentage of income based on the applicable tax rates. As with personal income tax rates, corporate tax rates fall within brackets. For instance, corporations with a total taxable income of less than $50,000 must pay 15 percent of that in income tax, while corporations with a taxable income of $50,000 to $75,000 must pay an income tax of 25 percent.

f) Subtract any applicable tax credits that the are available or that can be claimed by the corporation. A tax credit is a flat amount that a tax payer can subtract from whatever he must pay in taxes. The federal government allows tax credits for such things as the installation of energy-efficient materials in business structures.