Cream of the Crop 1/Cream of the Crop 1.iso/BUSINESS/SBA62.ARJ/FSBA.EXE/F231.SBE

Text File | 1992-04-30 | 15KB | 355 lines

@109 CHAP 11

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                 │           C CORPORATIONS          │
                 └───────────────────────────────────┘

A "C corporation" is simply a regular corporation that has not made an
"S corporation" election.  As such, a C corporation is a separate tax-
able entity, paying taxes on its net taxable income at the following
rates:

              .  First $50,000 of income  --  15%
              .  $50,000 to $75,000       --  25%
              .  $75,000 to $100,000      --  34%
              .  $100,000 to $335,000     --  39%
              .  Over $335,000 of income  --  34%

Note that if a C corporation is considered to be a "qualified personal
service corporation" as defined in the Revenue Act of 1987, ALL of its
income will be subject to tax at a flat rate of 34%, instead of the
bracket schedule above.

C Corporations must file an annual federal income tax return by the
15th day of the 3rd month after the taxable year ends, on Form 1120.
(S corporations file a Form 1120S.)

@CODE: AL AK AZ AR CO CT DE FL GA ID IL IN IA KS KY LA ME MD MA MN
It will also be necessary to file state corporate income tax returns
annually with the state taxing authorities in @STATE.

@CODE:OF
@CODE: MS MO MT NB NH NJ NM NY NC ND OH OK OR PA RI SC TN UT VT VA WV WS
It will also be necessary to file corporate income tax returns with the
state of @STATE.

@CODE:OF
@CODE: AL MO
@STATE imposes a 5% tax rate on taxable income of corporations, or
@CODE:OF
@CODE: AL
a 6% rate on financial institutions.
@CODE:OF
@CODE: MO
7% on the net income of banks, trust companies and credit institutions.
For 1990 and 1991, the corporate tax rate was increased to 6% on income
over $100,000 and 6.5% on income over $335,000.  Missouri voters in
1991 rejected a proposal to retain the higher (6.5% rate) after 1991,
so that the general corporate tax rate reverted to a flat 5% as of
January 1, 1992.
@CODE:OF
@CODE: AK
The state of Alaska imposes a tax on corporate taxable income, which
starts at a 1% bracket and rises to a maximum bracket of 9.4% on in-
come over $90,000.
@CODE:OF
@CODE: AZ
Arizona imposes a flat rate corporate income tax, since 1990, with a
reduced tax rate of 9.3%.  Previously, corporate tax rates were grad-
uated with a top rate of 10.5%.  There is also a minimum corporate tax
of $50 a year.
@CODE:OF
@CODE: AR
Arkansas has a graduated corporate tax on income, with a maximum rate
of 6% on corporate taxable income over $75,000.  But corporations with
over $100,000 of net income pay a flat tax rate 6.5%, for income years
that began on or after January 1, 1991.
@CODE:OF
@CODE: CO
Colorado imposes a corporate income tax of 5% on the first $50,000 of
taxable income, and 5.2% on income over $50,000 (decreasing to 5.1%
on July 1, 1992, and to 5% after June 30, 1993).
@CODE:OF
@CODE: CA
California imposes a franchise tax on the income of corporations doing
business within the state, at a flat rate of 9.3% of the corporation's
taxable income.  Even if a corporation has no income (or a loss), it
still must pay a minimum franchise tax each year of $800.

The California franchise tax return is Form 100 (Form 100S for S cor-
porations).  While California now recognizes S corporations and taxes
their income to the shareholders, it also imposes a 2.5% tax at the
corporate level on an S corporation's taxable income.
@CODE:OF
@CODE: CT
Connecticut imposes a tax of 11.5% on corporate income (or, if higher,
a tax of 3.1 mills per dollar of capital).  There is a minimum annual
tax of $250 and a surtax equal to up to 20% of the tax in 1991, reduced
to 10% in 1992, and phased out after 1992.
@CODE:OF
@CODE: DE
Delaware taxes corporations (other than banks and trust companies) at
a flat 8.7% tax rate.  The tax rate on banks DECLINES after $20 million
of taxable income, to as low as 2.7%.
@CODE:OF
@CODE: DC
A corporate income tax return must also be filed with the District of
Columbia.  The @STATE taxes corporations (including S
corporations!) at a rate of 10.5% of federal gross income (with certain
adjustments), or at 10.25% for years ending after 9/92.  There is a
$100 minimum tax.
@CODE:OF
@CODE: FL
Florida taxes corporations' income at a rate of 5.5%, generally.
@CODE:OF
@CODE: GA VA
The state of @STATE taxes corporate income at a rate of 6%.
@CODE:OF
@CODE: HI
Corporations doing business in Hawaii, except for S corporations,
certain financial corporations and SBICs, are subject to Hawaii's
corporate income tax, at the following rates:

    . 4.4% on the first $25,000 of income

    . 5.4% on the next $75,000

    . 6.4% on taxable income in excess of $100,000

Banks, savings and loans, SBICs and certain other financial corpora-
tions are generally not subject to the corporate income tax, but in-
stead pay a corporate franchise tax at an 11.7% tax rate, based on
their taxable income.  Insurance companies pay neither tax, instead
paying a "gross premiums tax."

In addition, Hawaii has an all-pervasive "General Excise Tax" or (gross
income tax), in lieu of a sales tax, which applies to virtually all
business revenues, generally at a 4% rate.  It applies not only to
corporations, but to the gross income of virtually all businesses, and
even applies to amounts paid for services (other than salary or wages)
or for real estate rentals.
@CODE:OF
@CODE: IL
The @STATE corporation tax rate is 4% (increased to 4.8% for the
period from 7-1-89 thru 6-30-93).  The rate is scheduled to drop to
4.4% after June 30, 1993.  The Personal Property Replacement Income
Tax remains at 2.5%.
@CODE:OF
@CODE: ID
Idaho's corporate tax rate is 8% of taxable income, plus $10.
@CODE:OF
@CODE: IA
Iowa taxes corporate income at rates starting at 6% on the first
$25,000 and rising to as much as 12% on income over $250,000.
@CODE:OF
@CODE: KS
Kansas taxes the income of most corporations at a rate of 4.5%, plus
a surtax of 2.25% on income over $25,000.  However, under newly-passed
legislation, the basic rate will drop to 4%, and the surtax will in-
crease to 3.35% (on income over $50,000), for years after 1991, unless
the new enactment is vetoed by the Governor.
@CODE:OF
@CODE: KY
Kentucky has graduated corporate income tax rates, beginning at 4% on
the first $25,000 of taxable income and rising to a top rate of 8.25%
on income over $250,000.
@CODE:OF
@CODE: LA
Louisiana corporate tax rates range up to a maximum tax bracket of 8%
on income over $200,000.
@CODE:OF
@CODE: LS
@STATE taxes corporate net income, after bribes, at a rate of
150%.  This is a major incentive to reduce taxable income, as you might
well expect.
@CODE:OF
@CODE: ME
Maine taxes corporate income at graduated tax rates, with a top rate of
8.93% on income over $250,000. There is also a 10% 1991-1992 surcharge.
@CODE:OF
@CODE: MD
@STATE taxes corporate income at a flat tax rate of 7%.
@CODE:OF
@CODE: NC
NORTH CAROLINA taxes corporate income at a flat tax rate of 7.5%.  In
addition, corporate income tax surtaxes are imposed at the rates of 4%
in 1991, 3% in 1992, 2% in 1993 and 1% in 1994.
@CODE:OF
@CODE: MA
Corporations subject to Mass. tax pay either an income tax or a higher
tax computed in several different ways, which is thus rather complex.
The "nominal" tax rate on income is 9.5% (including a 14% surtax).
@CODE:OF
@CODE: MN
Minnesota taxes the income of corporations and financial institutions
at a 9.8% tax rate, effective in 1990.  C and S corporations and part-
ships are now also subject to a minimum annual fee based on Minnesota
payroll, property and sales, ranging from zero (for firms with payroll,
property and sales under $500,000) to $5,000 for those with over $20
million.
@CODE:OF
@CODE: MS
Mississippi corporate tax rates are the same as for individuals--3% on
the first $5,000 of income, 4% on the next $5,000 and 5% on income over
$10,000.
@CODE:OF
@CODE: MT
Montana generally taxes corporate income at a rate of 6.75%.  A 5%
surtax also applied in 1990, but expired January 1, 1991.  There is
an annual minimum tax of $50.
@CODE:OF
@CODE: NB
Corporations subject to Nebraska tax (except financial institutions)
pay corporate income tax at a rate of 5.58% on the first $50,000 of
income and 7.81% on the excess (in 1991).  A 15% surtax on corporate
taxable income over $200,000 was imposed in 1991, in addition to a
2% surtax on all depreciation.
@CODE:OF
@CODE: NH
New Hampshire imposes an 8% tax on taxable business profits of organi-
zations having gross business income of over $12,000.
@CODE:OF
@CODE: NJ
New Jersey imposes a business income tax of 9% on the income of corpor-
ations, generally, plus a surtax for hazardous waste cleanup until June
30, 1993 that varies from year to year (currently 0.375% for years
ending between July 31, 1991 and June 30, 1992).
@CODE:OF
@CODE: NM
The state of New Mexico taxes the income of most small corporations
(i.e., the first $500,000 of taxable income) at a rate of only 4.8%.
Larger corporations pay tax at a rate of 6.4% on taxable income between
$500,000 and $1 million, and 7.6% on amounts over $1 million.  Certain
qualified taxpayers may instead pay an alternate tax based on 3/4 of 1%
of New Mexico sales.  All corporations doing business within the state
must also pay an annual $50 franchise tax.
@CODE:OF
@CODE: NY
The state of New York taxes corporate income at 9%, in general, but
a corporation pays the greater of the tax so computed or as computed
based on the corporation's capital allocated to New York (or a minimum
tax).  A 15% surtax has been enacted for the two tax years beginning
after 6-30-90, and 10% for the year after.  New York City also imposes
an income tax on corporations.
@CODE:OF
@CODE: ND
North Dakota taxes corporate income at rates up to 10.5% on income
over $50,000.
@CODE:OF
@CODE: OH
Corporations doing business in Ohio are subject to the higher of a tax
of up to 8.9% of income or a tax based on value of stock.
@CODE:OF
@CODE: OK
Oklahoma taxes corporations at a rate of 6% of taxable income.
@CODE:OF
@CODE: OR
Oregon taxes corporate income at a rate of 6.6%.
@CODE:OF
@CODE: PA
Pennsylvania taxes corporate income at a rate of 12.25%, generally, for
years beginning in 1991 and subsequently.  Also, corporations must pay
a capital stock and franchise tax of 12.75 mills per dollar of capital
stock apportioned to the state (minimum $300) each year.
@CODE:OF
@CODE: RI
@STATE's corporate tax rate is generally 9%, with a $250 minimum.
An 11% tax surcharge is in effect for tax years ending on or after
March 31, 1991, and before 1993.
@CODE:OF
@CODE: SC
South Carolina taxes most corporations at a 5% tax rate; banks pay at
a 4.5% rate.
@CODE:OF
@CODE: TN
Tennessee's corporate excise tax (on net earnings) applies at a rate of
6% of a corporation's federal taxable income, with adjustments.
@CODE:OF
@CODE: UT
Utah taxes most corporations and banks at a rate of 5% on net income.
There is a $100 minimum annual tax.
@CODE:OF
@CODE: VT
Vermont taxes corporate income at graduated rates of up to 8.25%, on
income over $250,000.  There is a minimum tax of $150.
@CODE:OF
@CODE: WV
The West Virginia corporate tax rate is 9.15% for the year beginning
7-1-91, dropping to 9% on July 1, 1992.
@CODE:OF
@CODE: WS
Wisconsin taxes corporate income at a flat rate of 7.9%
@CODE:OF
@CODE: TX WY WA NV SD MI
There is no general state corporate tax on income in @STATE.
@CODE:OF
@CODE: SD
However, South Dakota does impose an income tax on banks and other
financial institutions, at 6% on net income of $500 million or less.
@CODE:OF
@CODE: MI
However, Michigan has a "Single Business Tax," somewhat similar to an
income tax, that applies at a 2.35% rate to the tax base amount for all
businesses (corporate, individual or partnership) in the state, except
those with a tax base under $100,000.
@CODE:OF

The C corporation has certain tax advantages over S corporations and
unincorporated businesses.  These include the following:

    .  It is a separate taxpayer, which can be used to split income
       between itself and its owner(s), with potentially lower overall
       tax rates as a result of the income-splitting.

    .  A C corporation can deduct amounts paid for fringe benefits
       for its employee/owners, such as medical insurance or medical
       reimbursement plans, disability insurance, or group term life
       insurance.  An S corporation generally cannot deduct any such
       expenses paid on behalf of employees who are 2% (or larger)
       shareholders, and unincorporated businesses cannot deduct such
       payments on behalf of the owners, for the most part.

    .  C corporations (other than certain "personal service corpora-
       tions") are generally allowed to elect a fiscal tax year, which
       can be useful in tax planning.  S corporations and partnerships
       must generally be on a calendar year, except for those that were
       already on a fiscal year and elected on a timely basis to retain
       such fiscal year (with certain onerous conditions attached) or
       new S corporations or partnerships which may be allowed to elect
       a year ending in September, October, or November, instead of the
       calendar year (with the same conditions attached).

    .  C corporations are able to deduct 70% (or more in some cases)
       of the dividends they receive from investments in other corpor-
       ations.  This "dividends received deduction" is not available
       on dividends received by an S corporation or an unincorporated
       business.

Disadvantages of C corporations include the following:

    .  They are required to use the accrual method of accounting
       (except in the case of certain personal service corporations),
       while S corporations and unincorporated businesses may use the
       cash method of tax accounting, unless they have inventories of
       goods they sell.

    .  Corporate maximum tax rates are higher than the maximum indi-
       vidual rates. (34%, or 39% in the "phase-out" range between
       $100,000 and $335,000 of corporate taxable income, versus 31%
       or slightly higher for individuals).

    .  C corporations are potentially subject to double taxation where
       income is paid out as dividends or accumulated and thus poten-
       tially subject to the corporate "accumulated earnings" penalty
       tax.  C corporations with certain types of income such as
       interest, dividends, rents and royalties are potentially subject
       to the "personal holding company tax" on such income if it is
       not paid out as dividends.

    .  The difference between a C corporation's "Adjusted Current
       Earnings" and its taxable income is mostly (3/4) a tax prefer-
       ence item for purposes of the alternative minimum tax (AMT), and
       thus may sometimes result in an AMT tax liability that another
       type of entity would not have incurred.