Monday, June 6, 2011

On Corporate Taxes


Looking for stats on corporate tax deductions, to use as an estimate of corporate costs. First interesting thing I found was Check List of Corporate Tax Deductions from

It says in part:
A Corporation is the only type of business entity in the United States that is required to pay “income tax” on its profits. That is why corporate tax deductions are so important.

Well, I don't like the word "only" there, but certainly a corporation pays income tax on its profits. And yes indeed, that is why tax deductions are so important. Most of the revenue a corporation receives comes in response to some corporate spending -- the cost of labor and materials, overhead, and advertising for example. Only the excess of revenue over expenses is profit. And only the profit is taxed.
So if you think there are too many ads on TV, just remember that the money spent on business advertising is income not subject to income tax!
A corporation reduces its taxes by increasing its deductions: by keeping track of every expense -- by keeping receipts for everything -- so it can subtract these expenses from revenue and reduce the taxable total.

And as I understand it, the business can reduce its tax obligation by increasing its spending. This is part of the incentive to growth built into the tax code.

The page explains the "only" notion, at which I raised an eyebrow:
... the Corporation must pay its own “income taxes.” In the case of other business structures such as sole proprietorships, LLCs, and partnerships, the tax obligation is passed on to the owners directly. They then pay the income tax on the profits as part of their own personal income taxes.

So okay, due to legal arrangements and technical definitions, the corporation is "the only type of business entity in the United States" that pays income tax. Other types of business are also taxed on their profits, but the legal arrangements are different.

Even though the legal arrangements differ, the concept is the same: business expenses in general are deducted from gross income to determine the taxable income. That's the same for any business, far as I know.

"Non-profit" organizations are different, as I understand it: It's not that they don't make profit; it's that the profit is not subject to tax. But that's a different story.

Since the Corporation is treated much like an individual for the purpose of taxation, it is essential to make sure that only the fair and legal amount of tax is being paid.

Mmm, the corporation "is treated much like an individual for the purpose of taxation". How's that? Because we all get to write off almost all our expenses, and we're only taxed on the little bit of our income that didn't get spent in some legitimate way???

If corporations were treated like individuals for the purpose of taxation, they wouldn't need separate tax forms.

It may be nice to the ego of the managers to inflate the profit figures by ignoring some legitimate business expenses, but it is not wise from a taxation point of view to miss any deductions. So, what are legitimate business expenses?

Actually, any expense that is in anyway related to the goal of producing a profit can be deducted as a legitimate cost of doing business expense.

There ya go. And in case you missed it:

A checklist of Corporate Tax deductions would include virtually everything that is related to doing business.

No comments: