Lesson 10 of 13
Federal corporate taxation
The corporation calculates and pays tax on its own taxable income, then shareholders are taxed on distributions.
The company layer
The corporation files Form 1120 and pays federal corporate income tax on taxable profit, usually with quarterly estimated payments through the year.
The shareholder layer
Dividends paid out are taxable to shareholders on their personal returns. Profit that stays in the business and is reinvested is not subject to the second layer, which is one reason growth companies retain earnings.
Salary and payroll
Shareholders who work in the business are employees. Their wages go through payroll with withholding, and the wage expense reduces corporate taxable income. Pay must be genuinely for services rendered.
Rates, deductions and credits change with legislation. Confirm current rules with a tax professional before planning around a specific number.
Official sources
Want us to incorporate for you?
You can incorporate directly with the state using the steps in this course. If you would prefer, Gullia Filing prepares and files the Articles of Incorporation, supplies bylaws and organisational resolutions, obtains your EIN and acts as your registered agent.