After the passage of the Tax Cuts and Jobs Act in December 2017, the US corporate tax rate will be 21% for all corporations. This is a significant reduction from the previous top rate of 35% that the most profitable corporations had to pay. This applies to US-based companies as well as foreign corporations that do business in the US.
Capital Gains Tax
Corporations are responsible to pay tax on capital gains at a rate of 30%. Capital gains are a result of the sale of a capital asset. A capital asset is basically anything owned by a corporation for investment purposes. The gain is calculated by subtracting the adjusted basis (original cost minus accumulated depreciation) from the amount received in the sale. Also, it is important to distinguish between long-term and short-term capital gains. Long-term gains are taxed as capital gains while short-term are taxed as ordinary income.
During the same tax year, capital losses can be deducted against capital gains in order to reduce taxable income. However, net capital losses in excess of $3000 may not be deducted from taxable income.
Dividends and Interest
Passive income like dividends, interest, rents and royalties are all taxed at the same rate as ordinary income. However, to avoid triple taxation of dividends, corporations are allowed to deduct a portion of dividends received from taxable income. For most corporations, they may deduct 70% of all dividends received. The rest of the dividend income will be included in taxable income.
Employers are required to pay various taxes in the form of matched employee contributions. On wages up to $113,700, employees and employers are each required to pay 6.2% of the employee’s salary to the government to fund social security benefits. Similarly, each party pays 1.45% of the employee’s salary for Medicare. Additionally, corporations are on the hook for 6% of the first $7000 of each employee’s wages for federal unemployment insurance.