Know Your Taxes – Corporate Tax

Much like individuals are charged income tax on their income, businesses are charged corporate tax on their net profits.  Businesses are often charged at the federal, state and local level.  Currently the maximum businesses pay in taxes within the United States for federal tax is 35%.  State taxes on corporations run as low as 0% to as much as 10%.  Some local city taxes can run as high as 9%.

Corporate taxes are also a political hotspot.  Just as individuals can claim deductions to lower their overall tax burden, so too can businesses.  Most businesses based in the United States can claim enough deductions to lower their overall national tax burden well below 25%.

President Obama is seeking to eliminate the many tax deductions and charge corporations a business tax of 28%.  In addition, to stop the flow of companies leaving the United States to set up their operations in other countries, Obama is seeking to make up the difference between what a United States corporation must pay for taxes in the foreign country they operate in and what they would pay if based in the United States.  For instance, if the company is in China and they are required to pay 9% in tax to China, but they would have to pay 28% if operating in the United States, they would then need to pay the United States 19%, which is the difference between the two tax rates.  The hope is that this law will entice more companies to remain in the United States.  As further incentive, Obama has proposed eliminating any tax breaks to help a company relocate to another country.

There has not been a major business tax overhaul since 1986, so most think that one is overdue, especially considering the technological advances and economic changes that have occurred in the last 25 years.

For more information, see CNN Money.