Corporate Tax Reform

Abstract

This paper will discuss the corporate tax reform in America; it will also outline how tax authorities impose the tax. It will also state what happened after January 2017; it will also show how shareholders are taxed. The paper will conclude by saying what happens if corporations arrive to evade tax.

Keywords: corporation, tax, foreign income tax, dividends, mutual funds

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Most of the states, federal and some of the local levels which are on the income of entities in the United States of America are treated as corporations. On first January 2018, the corporate tax rate of nominal federal in America is a flat of 21%, and this is as a result of approval and passage of the job activities of the year 2017 and the tax cuts. Some of the local and state taxes differ and vary due to jurisdictions, but their basis is on matters concerning definitions and concepts. The tax imposed on income can differ starting with some tax deductions, book income, timing of income and also amount that is taxable.

As reform happened on 2017 corporate alternative minimum tax got eliminated while some of the states got some alternative charges. It is compulsory for individuals and corporations to file tax returns every year and it also mandatory for them to make quarterly estimated tax payments. Owners who own and control corporations and groups are required to file a consolidated return, but some corporate transactions are not taxed. Some of these transactions which are not taxed are mergers, liquidations, and acquisitions.

Most of the corporation shareholders do not get taxed directly but what happens is that they get to pay tax according to dividends that corporations distribute. Some of these corporations can get subjected to foreign income taxes (foreign income tax), and this can make them receive or be granted with some foreign income tax credit, and this can be as a result of such charges. Tax is not imposed directly on the corporate income of these corporation shareholders, what they do is that they get taxed or they pay the fee through dividends which are paid by this corporation. Mutual funds S corporation’s shareholders get taxed on corporate income. Hence they do not pay their taxes through dividends.

When it comes to federal level corporate income tax gets imposed and all entities which are treated as corporations also to impose corporate tax income.

To both domestic and foreign corporations which have income or activities within the jurisdiction corporate tax income is imposed on them. Entities which get to be organized in the state are referred to as domestic while objects which happen outside the country are known as foreign. Corporations such as S corporations and mutual funds tax is not imposed on them at the corporate level, but the shareholders get taxed on their corporation’s income.

C corporations are corporations which are not in S corporations. Before 2018 tax was being imposed on all domestic corporations on their income worldwide, this was happening to both federal and state levels. After the jobs acts of 2017 and tax cuts was changed the system also changed and all subsidiaries get taxed at a rate of jurisdiction under which domestic corporations were established. Under state or federal law, corporate tax income is based on net taxable income. To get corporation taxable income, you take gross income then few tax deductions which are allowable. Tax exemption can be applied to individual income and also some corporations. Corporations are allowed to pick out their tax year, and it must belong than 52weeks or 12 months. Internal revenue service consent is needed if any corporation wants to change its tax year.

Group of companies is allowed and permitted to file as a single return for its members of the unitary group or controlled group which is known as consolidated returns. The consolidated profit gives the taxable income and also computes a combined tax of the members. In situations or places where some related parties do not file the consolidated return in their jurisdiction, they are subjected to something known as transfer pricing rules. These rules allow the tax authorities to either adjust the price to be charged between the related parties. Corporation’s shareholders get taxed separately according to the distribution of corporate earnings and profit as s dividend. When it comes to both corporate and individual shareholders the rate on tax dividends are lower than on ordinary income. To ensure that all the shareholders get to pay tax on dividends the tax authorities apply two withholding provisions, which are withholding tax on foreign shareholders and a backup withholding on several or individual shareholders.

Conclusion

It is compulsory for all corporations to file tax returns under US jurisdictions that impose an income tax. These returns are termed as self-assessment of tax. For many states and federal levels, corporate income tax can be paid in some advance installments or even estimated payments. Making different varieties of payments to others can make a corporation to be under or get subjected to withholding tax obligations. These payments may include wages and some distributions which are treated as dividends. But these obligations are not the actual tax of the corporation, but this makes the system to impose penalties on the corporation, employees and also officers of the corporation for not withholding and paying over such taxes.

 

References

Canellos, Peter C., George K. Yin, George Mundstock, American Bar Association. Section of Taxation, and the New York State Bar Association. Tax Section. Corporate tax reform: a report of the Invitational Conference on Subchapter C, 8th ed. 2017.

Stotsky, Ms. J., and Ms. A. WoldeMariam. Central American Tax Reform: Trends and Possibilities, 4th ed. Washington: International Monetary Fund, 2017.

Zodrow, George R., and Peter Mieszkowski. United States Tax Reform in the 21st Century, 7th ed. Cambridge: Cambridge University Press, 2018.

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