What is corporation tax?
Posted on December 22, 2008 by admin
Becky; ♥ asked:
I understand that it is only paid by limited companies, but what is the definition of a limited company? And how come you end up saving money? Do u not have to pay income tax aswell if your a limited company? Help please!
And how do you reduce the amount of corporation tax you pay? Aaa im so confused :/
I understand that it is only paid by limited companies, but what is the definition of a limited company? And how come you end up saving money? Do u not have to pay income tax aswell if your a limited company? Help please!
And how do you reduce the amount of corporation tax you pay? Aaa im so confused :/
Okay, at the federal level regular (read large) corporations pay corporate income tax. Smaller corporations which elect to file as S-Corporations, Limited Liability Companies, Partnerships and Sole Proprietorships pass their profits through to their owners who pay personal income tax on the profits.
At the state level the taxation picture varies from state to state. I suspect that the corporation tax you have heard about is a state tax of some kind.
When you say a limited company I think you are referring to a Limited Liability Company. If so, this is a form of business organization which limits the liability of the owner(s) and allows them to protect their personal assets from many types of legal action.
The savings come about because the double taxation on ordinary corporations is eliminated. Instead the profits are taxed only at the personal level and not at both the corporate and personal level..
By filing as an S-Corporation instead of filing as an ordinary corporation you don’t pay any corporate tax.
Hope this helps
Jerry-the-bookkeeper