Do Corporations Pay State & Federal Taxes?
Taxpayers let out a collective groan as April 15 rolls around each year. Employees at the Internal Revenue Service and state governments work overtime to manage income tax forms and record the receipt of income taxes from most taxpayers this time of year. Taxpayers come in a variety of forms, including individual employees, sole proprietor business owners and corporations. No one escapes paying his share of income taxes.
Other People Are Reading
-
Separate Entity
-
Each corporation represents a separate legal entity for entering contracts, appearing in court proceedings and paying taxes. A separate legal entity means that the corporation acts as an independent organization, separate from its investors. The corporation chooses to participate in various business transactions, and the investors hold no liability if the transaction fails. This concept applies to state and federal income taxes as well. The corporation owes state and federal income taxes based on its taxable income. The investors hold no liability if the corporation fails to file or pay its taxes.
Income Tax Filing
-
The deadline for filing corporate income tax returns is March 15, or one month prior to the deadline for individuals. Corporations unable to file their taxes by March 15 may choose to file an extension using form 7004 with the IRS. The form provides an additional six months before the corporation must file its income tax return.
-
Income Tax Liability
-
Corporations maintain separate accounting records to calculate their income tax liability. Corporations benefit from several tax deductions or tax credits, which reduce their taxable income, such as the alternative motor vehicle credit. Transactions that meet the requirements for these tax credits need to be recorded separately in the tax accounting records. Corporations must pay their income taxes by March 15, regardless when the return is filed. Any corporation that fails to pay its taxes on time will incur interest charges and penalties on the tax amount due.
State Income Taxes
-
Most states require corporations to pay an income tax to the state. Michigan, Nevada, South Dakota, Washington and Wyoming are the only states that omit this requirement from their tax code. Michigan and Washington tax corporations through alternate means, such as a value-added tax or a gross receipts tax. State income tax rates for corporations range from 2.3 percent to 10.75 percent (as of March 2011).
-
