C-Corporations Income Tax Return

Corporate Income Tax Rate: 8.7% of federal taxable income allocated and apportioned to Delaware based on an equally weighted three-factor method of apportionment. The factors are property, wages and sales in Delaware as a ratio of property, wages and sales everywhere.

Consolidated Corporate Income Tax Returns: Not Permitted. Each member of a consolidated group must file a separate return, reporting income and deductions as if a separate Federal Income Tax Return was filed.

Estimated Tax Liability: To be prepaid by every corporation in four installments: 50% (due on or before the first day of the fourth month of the taxable year) 20% (due on or before the 15th day of the sixth month of the taxable year) 20% (due on or before the 15th day of the ninth month of the taxable year) 10% (due on or before the 15th day of the 12th month of the taxable year).

Penalties:  a.  A penalty of 1½% per month is imposed on the failure to pay, timely pay or underpay any estimated tax installments. b. Late Returns are subject to a penalty of 5% per month, up to a maximum of 50% of the tax due plus interest of 1% per month from the original due date until the tax is paid. In addition, an additional penalty of 1/2% per month, not to exceed 25%, is imposed for failure to pay (in whole or in part) the tax liability due on a timely filed return.

Steps:

Decide Whether to Be Taxed as an S Corp. or a C Corp.

When you form a corporation, your business is automatically treated as a C corporation for federal income tax purposes.

A C corporation is a traditional corporation that pays corporate income tax on its profits, with its shareholders paying tax on the salary and dividends they receive.

This taxation of dividends at both the corporate and individual levels is sometimes referred to as “double taxation.”

File an S Corporation Election

If you want your business to be taxed as an S corporation, you must fill out Internal Revenue Service Form 2553, have all shareholders sign it, and file it with the IRS.

The deadline for filing the form is 2 months and 15 days after the beginning of the tax year. If you are a newly formed corporation, your tax year begins when your corporation is formed.

The IRS instructions for Form 2553 include a full explanation of these deadlines. The IRS must approve your S corporation election. Once you’ve elected S corporation status and it’s been approved, the election stays in effect until it is terminated or revoked.

Learn About Tax Deductions for Corporations

In addition to the ordinary business expenses that all small businesses can deduct, corporations can deduct employee salaries and bonuses and the cost of employee health insurance and retirement plans.

Understanding these deductions will help you make choices that will maximize your tax savings.

Pay Estimated Taxes

C corporations must pay estimated corporate income tax, and S corporations must make estimated tax payments for certain S corporation taxes. Estimated tax payments must be made quarterly throughout the year.

Corporations that do not pay their estimated tax payments on time can be subject to interest and penalties for underpayment.

File Your Federal Tax Return

The type of tax return you file for your corporation will depend on whether you’re an S corporation or a C corporation.

If your business is an S corporation, you’ll file Form 1120S, a tax return that shows your corporation’s income, expenses, and losses.

You’ll also file a Form K-1 for each of your corporation’s shareholders, showing their share of the corporation’s income, deductions and credits. You must provide your shareholders with copies of their K-1 forms so they can report their share of the corporate income or loss on their personal income tax returns.

File Your State Tax Returns

Depending on your tax status and the state where your corporation was formed, you may also have to file a state income tax return for your corporation.

The corporate tax rate is usually a flat percentage that varies from state to state. If you are registered to do business in additional states, those states may also require state tax returns for your corporation and/or its shareholders.

Corporate taxes can be confusing, so it pays to get advice from a tax professional before choosing your corporation’s tax status or preparing your taxes.

An accountant can explain the consequences of C corporation or S corporation taxation, advise you on maximizing your business tax deductions, and prepare your return.