Corporate tax is often referred to as corporation tax or company tax. This tax is a federal tax that is directly paid on the income of corporations. Most countries impose these taxes at a federal level, and in the United States, some states do as well. In the state of Florida, the corporate tax rate is 5.5%.
Taxes for corporations are paid on all operating earnings. This includes revenue minus any cost of goods sold, as well as general and administrative, selling and marketing, research and development, depreciation, and operating costs.
One benefit of corporate taxes is that they can be lower with deductions and subsidies. Although there is a set corporation tax rate, the rate that is actually paid is typically lower.
How Corporate Taxes Work in Florida
The United States imposes a tax on all profits of domestic resident corporations. The purpose of corporate tax is to raise funds for the government, and it has proven very effective. The corporate tax rate was 35 percent for many years, but as of 2017, the corporation tax rate is 21 percent.
This huge jump was put into effect by the 2017 Tax Cuts and Jobs Act. In 2019, the corporate income tax raised $230.2 billion. This accounted for 6.6 percent of total federal revenue, while previously it accounted for up to 9 percent of total federal revenue.
Taxes Paid by Corporations in Florida
There are a variety of taxes paid by corporations in Florida. There are also two different types of corporations, S-corps and C-corps. Along with other attributes, each of these corporation types pays taxes differently.
These are different for each state, but the Florida taxes paid by both S and C corporations include:
- IRS Payroll Tax (due to being an employer)
- State Income Tax (does not exist in the state of Florida)
- Sales and Use Tax Payable to the State of Florida (if you sell products or services)
Corporations in the state of Florida pay estimated taxes four times per year. These taxes will depend on the amount of income and profit you expect to make, but the most common types of estimated tax are:
- Federal income tax
- Federal self-employment tax
- Florida state tax
You may also need to pay tax and insurance for any employees. This can include employee compensation insurance or unemployment tax.
S-Corp Tax Liability
In a Florida S Corporation, your earnings will “flow-through” from the business to your personal tax return. Because of this, Self-Employment Tax is one of the many required taxes. Self-employment tax is paid at a rate of 15.3 percent, but you can deduct tax deductions and business expenses from that rate.
If you pay some of the income from an S corporation as a “distribution” then you may be able to avoid some self-employment tax.
C-Corp Tax Liability
Florida C corporations must pay a few other taxes as well. Although s corporations are similar to Florida LLCs in that they offer pass-through taxation, a Florida c corporation must file a corporate tax return.
Corporation taxes are paid on profits, and then when the shareholders (owners) are paid dividends, those dividends will also be taxed through the personal income tax return. This procedure is known as double taxation.
What Expenses are Tax Deductible in Florida?
Tax deduction allows you to lower your taxable income. This can not only reduce the amount of money you need to pay taxes on, but also bring you into a lower tax bracket.
Tax-deductible items are reduced from your income, making your taxable income lower. Essentially, the lower your taxable income, the lower your tax bill.
Any expenses that reduce your taxable profits are considered tax-deductible. Some of these tax-deductible expenses include:
- Operating expenses
- Employee salaries
- Advertising and marketing costs
- Benefits to employees
- Business meals
- Travel expenses (related to work)
- Office supplies
- Phone and internet expenses
- Business interest and bank fees
How Business Owners Benefit from Corporate Taxation in Florida
Although corporate taxation can sometimes seem less appealing than other forms of taxation, such as with that of an LLC or sole-proprietorship, there are advantages. Corporation taxation is essentially a separate income tax statement.
Rather than paying additional individual income tax, corporate tax returns allow you to deduct medical insurance, as well as fringe benefits. This can include retirement plans, along with ease of deducting losses.
Overall, a corporation is able to deduct all losses, while a sole proprietor must provide evidence. Profit can also be left in a corporation, which may lead to potential tax advantages in the future.