How is a Corporation Taxed?
The New York State Tax Law requires a corporation to file franchise tax reports and pay franchise taxes annually even if the corporation does not conduct business or loses money. Franchise tax requirements begin the date the corporate existence begins. Tax responsibilities continue until the corporation is legally dissolved by the Secretary of State. The corporation will need a taxpayer identification number, obtainable from the federal Internal Revenue Service (http://www.irs.gov/). The IRS can answer questions about paying or withholding federal income tax, social security taxes and other federal taxes. Questions concerning New York State taxes should be directed to the New York State Department of Taxation and Finance (http://www.tax.state.ny.us/), Taxpayer Assistance Bureau, W.A. Harriman Campus, Albany, NY 12227.
C-Corporation At the federal level In forming a corporation, prospective shareholders transfer money, property, or both, for the corporation’s capital stock. A corporation generally takes the same deductions as a sole proprietorship to compute its taxable income. A corporation can also take special deductions. The profit of a corporation is taxed to both the corporation and to the shareholders when the profit is distributed as dividends. However, shareholders cannot deduct any loss of the corporation. At the state level Depending upon the state, your corporation may be required to pay an annual tax or franchise tax. In California, the Franchise Tax Board imposes an $800.00 minimum tax that is due in the beginning of the fourth month of the second year. In addition, the corporation will be required to pay the minimum tax every year for the life of the corporation. Since each state is different, we recommend that you speak to your accountant or tax preparer for specific tax questions.
A C Corporation is taxed separately under special corporate rates on all net profits, after deductions, using the IRS form 1120. Other forms of business allow the profits and/or losses of the business structure to pass through to the owners who incur the tax liability on their personal tax reporting. The C Corporation is a taxable entity.
