Tax on Corp Profits

[Ox]

As taken from another thread:

accountants dont know shit! they will tell you the recaptcher value. You will also have to share 21% with the irs any price the machine brings, and thats not with the state tax of 6.75% in Montana...And if Biden gets his way it will be 28% plus state tax...You might be better off gifting it to a non profit...Phil

Purty sure that he is talking about C Corps.
(Also heard that Biden would like to kill the S Corp designation)


I checked into this recently when I heard this thing about Biden wanting to pay for the worlds woe's by bumping up corp tax rate from 21 to 28%.

Now we have had to pay that 21% when paying back old debt, I sorta understand that....
Ass_u_ming that we already claimed the expense that went with that some years ago... (?)

But ass_u_ming that we would pull any profits out near the end of the year, and then [only] pay income tax on that on the personal side, there really shouldn't be anything in the Corp kitty left to tax as profits. Don't wait until March and then skim the balance left AFTER taxes! Don't pay taxes 2wice!

Not sure if there is a good scenario to leave $ in the Corp and pay the tax?


So, my assumption was that this really turns into a Wall Street issue?
My assumption was that Public Corp profits are taxed before they are disbursed as dividends, otherwise I'm not sure what high volume of Corp (income/profit) taxes there would ever be?

Near as I could decipher the response that I got from my accountant, that is correct.


So, Phil, doo you see this another way?


Comments anyone?


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Think Snow Eh!
Ox

 

[Phil in Montana]

Yes it is a C corp, The quote above was about the sell of fully deprecated. corp ascents.. It is my understanding the profit can be paid to the stockholders before the c corp pays it taxes and avoid the 21% cap gains if done before the end of the year. If you wait you will be dubble taxed once for the c corp and 2nd on the stockholder dividend. A bad deal, I have this into my bookkeeper right now. If the corp rate goes to 28% the state rate will go to 10%...The fed and the state have no risk yet they pull 35% of the profit without any work on there part. This will be the death nail of small buss. The risk will not be worth the reword, right now inflation is going sky hi with the spending and buss capital is being removed to save the 7% diff if Biden does raise the corp rate, I dont see how that could happen and hold the economic system up...Phil

 

[gbent]

Dividends are paid to corporate stockholders out of retained earnings. Retained earnings are the after tax profit of the corporation. Make sure the dividend you are paying yourself is a "qualified dividend" On your personal income tax the qualified dividends are taxed at lower rates than ordinary income. You may also pay yourself W2 wages to reduce the profit of the corporation, but then you have to pay FICA taxes.

There is a lot of accounting horsepower spent on figuring out how to get money out of corporations while avoiding being taxed at both the corporate and personal levels. You need an accountant that uses a defensible position in case the g'ment starts asking questions.

 

[cnctoolcat]

There is a lot of accounting horsepower spent on figuring out how to get money out of corporations while avoiding being taxed at both the corporate and personal levels.

For large C corporations, yes. C-corp profits are taxed before distribution to the shareholders. Dividends are non-deductible by the C corp, so it's a balance as to how much dividends they actually declare.

But it's simple for S-corps. The S-corp never shows a profit or loss, and thus never pays income taxes. The annual profit or loss passes through to the shareholders, who add this income (loss) to their personal 1040 tax returns.

You pay your personal tax rate (depends on what bracket you are in) on your S-corp pass-through profits. You do not pay FICA on these pass-through profits.

As an S-corp owner, as tempting as it may seem, it's best to not take all your income as pass-through profits (and thus avoiding FICA and UI taxes), as this would eventually throw a red flag to the IRS and state unemployment office.

ToolCat

 

[Arc-On]

For large C corporations, yes. C-corp profits are taxed before distribution to the shareholders. Dividends are non-deductible by the C corp, so it's a balance as to how much dividends they actually declare.

But it's simple for S-corps. The S-corp never shows a profit or loss, and thus never pays income taxes. The annual profit or loss passes through to the shareholders, who add this income (loss) to their personal 1040 tax returns.

You pay your personal tax rate (depends on what bracket you are in) on your S-corp pass-through profits. You do not pay FICA on these pass-through profits.

As an S-corp owner, as tempting as it may seem, it's best to not take all your income as pass-through profits (and thus avoiding FICA and UI taxes), as this would eventually throw a red flag to the IRS and state unemployment office.

ToolCat

Very true.

The key part is to take home a "reasonable income" based on your sales and position.

If you're taking home weekly wages equivalent to what you would pay another person in your position (general manager, CEO, or president) then it is very acceptable to take the remaining profits as a dividend. But you get in trouble if the company is doing well and you're only taking a salary of 20k a year, and then taking a much larger percentage of your pay as a dividend. So, if you would have to pay a general manager 80k a year to do your job, then you should be taking 80k a year in salary and the rest as a pass through profits.

I personally am choosing to take home just what I need to pay the house bills and reinvesting everything else back in the business. I'd rather buy a new lathe than pay taxes, and I need a lathe more than cash in my personal checking right now. I'm an LLC taxed as an S-corp.

 

[FredC]

I have had a chapter S corp for some time and it was set up by the lawyer so that I retained owner ship of the equipment personally, pretty sure that then future purchases were done personally as well. Seems like this would be a protection from double taxation if any profit was involved in selling? Available for a C corporation if rent is paid on the machines?

 

[newtonsapple]

If the corp rate goes to 28% the state rate will go to 10%...The fed and the state have no risk yet they pull 35% of the profit without any work on there part. This will be the death nail of small buss. The risk will not be worth the reword, right now inflation is going sky hi with the spending and buss capital is being removed to save the 7% diff if Biden does raise the corp rate, I dont see how that could happen and hold the economic system up...Phil

You seem to be forgetting the first half of the equation where you deducted the cost of the equipment that was purchased. Depending on the timing of the deductions and what the profits were at the time, you may be getting a windfall in terms of the rate difference even if the rate goes up to 28%.

 

[Big B]

Remember when trump cut corporate tax rated from 28% to 21% and corporations passed on some of those savings on to consumers by reducing prices? Me neither.

 

[Ox]

Remember when trump cut corporate tax rated from 28% to 21% and corporations passed on some of those savings on to consumers by reducing prices? Me neither.

That's not that simple.

This tax is only on profits, not cost of production.
Some years you don't have any profit, and even carry a loss fwd, to put towards a profit some time over the next 7 years.

This is not the same as reducing the cost of goods from savings like importing, dropping health ins, culling old folks for a younger werkforce, etc.


However, the lower rate may attract investors in new or upgrading business.


It's not apples / apples


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Think Snow Eh!
Ox

 

[gbent]

Trump didn't cut all taxes, the lower rate was raised from 15% to 21%.

OT. Taxes have two purposes. #1 is to raise revenue for the government. #2 is to encourage/discourage certain types of expenditures. This country needs more capital expenditures, so please tell me how doubling the tax rate on capital gains will encourage this behavior.

 

[newtonsapple]

This country needs more capital expenditures, so please tell me how doubling the tax rate on capital expenditures will encourage this behavior.

Maybe I missed it, but in what way is it being proposed to double the tax rate on capital expenditures? .

 

[CarbideBob]

This is all so confusing.
C , S,and sole prop , dividends, excessive compensation and plain payroll payouts or end of year big bonus check. .....
Why is it such a mess? Is it to make sure accounts and lawyers are very well paid?
Do we float a big layer of dollars here? A cut off the top.
Bob

 

[gbent]

You are right, fixed it.

 

[Rick Finsta]

It's all so tiresome.

 

[Big B]

That's not that simple.

This tax is only on profits, not cost of production.
Some years you don't have any profit, and even carry a loss fwd, to put towards a profit some time over the next 7 years.

This is not the same as reducing the cost of goods from savings like importing, dropping health ins, culling old folks for a younger werkforce, etc.


However, the lower rate may attract investors in new or upgrading business.


It's not apples / apples


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Think Snow Eh!
Ox

It seems pretty simple to me. When we cut corporate taxes it adds to the national debt because of lost revenue. If us taxpayers are going to take on additional debt so that corporations can further reward their shareholders it seems like we should get something in return.

When there is talk of reducing the corporate taxes we hear that it will make businesses more competitive but taxpayers never benefit from our additional debt.

Have you ever read about how high taxes were after world war two and how much economic expansion it allowed for? Now we have people believing that government is the enemy and private businesses will save us. We end up with a bunch of billionaires at the top, a bunch of poor people at the bottom and an increasingly shrinking middle class.

 

[DDoug]

It seems pretty simple to me. When we cut corporate taxes it adds to the national debt because of lost revenue. If us taxpayers are going to take on additional debt so that corporations can further reward their shareholders it seems like we should get something in return.

When there is talk of reducing the corporate taxes we hear that it will make businesses more competitive but taxpayers never benefit from our additional debt.

Have you ever read about how high taxes were after world war two and how much economic expansion it allowed for? Now we have people believing that government is the enemy and private businesses will save us. We end up with a bunch of billionaires at the top, a bunch of poor people at the bottom and an increasingly shrinking middle class.

Private business's don't invade other countries and kill millions.....

 

[Ox]

It seems pretty simple to me. When we cut corporate taxes it adds to the national debt because of lost revenue. If us taxpayers are going to take on additional debt so that corporations can further reward their shareholders it seems like we should get something in return.

When there is talk of reducing the corporate taxes we hear that it will make businesses more competitive but taxpayers never benefit from our additional debt.

Have you ever read about how high taxes were after world war two and how much economic expansion it allowed for? Now we have people believing that government is the enemy and private businesses will save us. We end up with a bunch of billionaires at the top, a bunch of poor people at the bottom and an increasingly shrinking middle class.

IDK what taxes were under the New Deal, but "expansion after The War" was simply doo to the fact that we were the only [heavily] industrialized nation left on the planet to have all of our infrastructure intact. The benefits of being out of reach of the enemy, and having friendly neighbors!

The rest of the world came to our doorstep to retool their own countries.

That is how we went from the worst of time before the war, to the best of times for the common man in the 50's.
Not b/c we were better. Not b/c we werked harder. But b/c we didn't have to rebuild EVERYTHING.


I doo agree that our tax code needs changed so that those that make the most pay the most.
I don't like the increase in the top and the bottom and the dissapearance of the middle class either, but to say that a change in the tax of the profits will show up linearly in the price of goods - no, I don't see that. Maybe a smidge, but not directly, like the cost of manufacturing would.


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Think Snow Eh!
Ox

 

[Big B]

Private business's don't invade other countries and kill millions.....

Correct. Our government invades other countries and kills millions on behalf of the very rich to protect their assets.

 

[standardparts]

Correct. Our government invades other countries and kills millions on behalf of the very rich to protect their assets.

Yeah pretty much.

To be expected I guess when the wealthy pretty much determine who runs the country and what the priorities are.

 

[standardparts]

Private business's don't invade other countries and kill millions.....

Yeah there is that but war and killing certainly makes for huge corporate profits. Sort of a "what came first" thing.