Corporate Income Tax and Accumulated Earnings Tax

The U.S. tax system is very complex and confusing. However, it is considered as one of the best tax systems in the world. Many companies hire professionals to keep track of their taxes. Here is one of the companies that deals with tax preparation tucson az This company will help you to clean up all your taxes. In this article we will talk about corporate income tax and accumulated earnings tax.

Corporate Income Tax

Taxpayers of federal income tax are legal entities – residents of the USA, which have the tax status of corporations, as well as foreign organizations operating in the U.S. or receiving income from sources in the U.S. A legal entity is resident in the United States if it is registered under the laws of one of the 50 states or the District of Columbia.

The tax is imposed on the net profit of corporations calculated for the respective reporting period, which in general is 12 months. Net income is calculated using the standard method as income less expenses incurred. It should be noted that expenses reduce the income tax base only if they are incurred for the purpose of doing business, if they are ordinary expenses for this area of activity and if they are documented. However, there are exceptions to this rule for certain types of expenses that cannot reduce or partially reduce the income tax base.

The tax rate is progressive and depends on the amount of net profit. When calculating taxable income, resident corporations take into account all income received in the U.S. and abroad. Foreign companies that receive income from activities in the U.S. are subject to income tax in the same way as resident corporations on a progressive scale, depending on the amount of net income received from such activities. 

Income received by a foreign company from sources within the United States and not related to the activities of the foreign company within the United States is taxable and withheld by the taxpayer. This income includes interest, dividends, royalties, rentals and other passive sources of income. Double tax treaties allow the taxation of passive sources of income received by foreign companies from sources in the United States at reduced rates. U.S. tax laws contain a specific feature of taxation of foreign companies operating in the U.S. through branches. 

Accumulated Earnings Tax

In addition to corporate income tax, accumulated and retained earnings of corporations may be subject to income tax on retained earnings in certain cases. Rather, it is a penalty imposed for not distributing profits in the form of dividends to avoid or defer taxes payable on dividend income.

There are no appropriate forms for calculating and paying this tax. The Tax Inspectorate concludes that this tax is payable on the basis of the submitted tax return. In this case, the inspectorate informs the taxpayer accordingly about the necessity to pay this tax. It is possible to avoid the tax if the taxpayer proves that the accumulated profit was not distributed due to the need of business for funds, for business activities or other business purposes.