Corporate Taxation Basics
If you are forming a corporation in the state of Illinois, one of the matters you’ll need to be aware of is how your taxes will be affected. In most cases, you’ll have some familiarity with business tax obligations since most corporations are formed from existing entities, such as partnerships or limited liability companies.
Here, we’ll examine what taxes are imposed upon corporations and how those might best be handled.
Corporate Income Tax
Corporate income taxes are much like those that individuals pay on their personal income, except on a corporate level. These are separate from your own income taxes because the corporation is treated as a separate entity. The rates paid are dependent upon the size and type of business you operate.
These taxes are usually paid throughout the year in estimated payments. Generally, you must make estimated payments if you expect to owe $500 or more in taxes on your corporation’s income.
In addition to corporate income taxes, there are other taxes that you’ll need to keep in mind as well. The ones you’ll owe are dependent largely on the type of corporation you operate, whether you have employees, your industry, and other factors. These taxes include (but aren’t limited to):
- Social Security and Medicare taxes for employees
- Withheld federal income taxes for employees
- FUTA (Federal Unemployment Tax Act) taxes
- Excise taxes on items such as fuel, sale of heavy trucks and trailers, buses, wagers, and so on
These taxes typically require various forms and have their own rules and rates, so it’s important to be on top of what the IRS expects from your specific business. Preliminary research as well as legal guidance is recommended, especially for larger, more complex corporate structures and high-liability industries.
When to Pay Vs. When to File
If your business is small enough that you don’t owe a significant amount in taxes, then you can usually get away with making the payment together with your tax return. However, in most cases, you’ll have to make payments throughout the year (payments are typically due in April, June, September, and December). You’ll still have to file a tax return at some point during the year, however, and if you owe any outstanding payments on taxes, then you’ll catch up with those when filing as well.
In general, your corporate tax return is due on the 15th of March, though you can request a six month extension if needed. These taxes are reported on IRS Form 1120 for U.S. Corporations, and if the corporation is substantially large (over $10 million in assets), you must file online.
Perks and Drawbacks
Corporate taxation has some benefits, such as the ability to make numerous deductions from the taxable amount. These can be made for items such as losses, business expenses, medical insurance, retirement plans, and various fringe benefits.
On the other hand, a major concern with corporate taxes is the prospect of double taxation. This can be avoided by forming an S corporation, or it could be mitigated through careful tax planning. Tax lawyers (such as Hart David Carson LLP) can assist corporations with this planning. For more information, contact us today.