Corporate Tax Deduction List
Corporate taxes are very different than individual taxes. The corporate tax deduction list includes a great many items that would not necessarily qualify as individual deductions.
There are several advantages to structuring your business, even a small business, as a Corporation. The fact that your liability is limited only to the assets of the Corporation and do not extend to your personal assets is the major one. When your business is organized as a Corporation, you may very well lose your business if things go sour, but at least you will not lose your shirt or home. The taxation principles for a Corporation are very different, however, and you need to be aware of all the items on the corporate tax deduction list.
Corporations are taxed at a very high rate. This rate is currently 35% in the United States which ranks as one of the highest in the Western World. There are a couple of things that you need to know about this rate. First, the tax is not on the income of the Corporation, but only on the profits. The profits are considered to be only what are called ‘retainable” profits or profits actually paid out as dividends to stockholders. Retainable profits are those that might be called “bottom line” profits. It is what is left after every single business tax deduction is taken.
Normally, profit and loss statements focus on the actual costs associated with producing the income. If you are selling widgets, for example, the cost of the widgets is an expense. Profit is only the amount you sell them for less the amount you paid to buy or produce them. The cost of your building where they are sold and the salaries of your salesmen are naturally subtracted as well. This gives you a starting point. The profit involved in doing business.
There is another element. It is the cost of doing business. This is where a complete corporate tax deduction list comes into play. It would include business start up expenses, insurance for your building and contributions for employee insurance. It would include the following as well: car deductions, office expenses, business travel, meals and entertainment, depreciation, rent for equipment or special tools, and legal and professional services.
In fact, the corporate tax deduction list includes anything that you can document and that the IRS allows. It is all of these additional deductions for the costs of doing business that reduce the real profit of the entity to retainable earnings or dividends. It is also what justifies the rather high tax rate on Corporations. Although the Corporation is taxed at the high rate, it is also able to deduct just about everything it pays to conduct its business and pay its taxes on the profit not the income. It is easy to see how this differs from individual taxation. How nice would it be to owe taxes at the end of the year only on the funds left in the checking account on December 31st, and not the amount you earned during the year?