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General Corporate Tax Law Provisions

Although all businesses usually pay taxes on their profits at some point, corporations often go to great lengths to minimize theirs because they’re taxed directly on their profits – unlike sole proprietorships and partnerships. The latter’s profits move directly into the pockets of their owners, who in turn must personally pay taxes on those profits, minus certain tax-deductible expenses. 

Unfortunately, many corporations fail to see the many advantages they would gain by employing workers in this country. Instead, they hire foreign workers who readily accept lower wages. This is regrettable since so many Americans are still unemployed. Yet corporations often claim that they do this because they have a fiduciary duty to maximize corporate earnings so their shareholders will fully repeat all benefits possible.    

Why and How Corporations are Taxed Directly                                                                                           

Stated simply, corporations are directly taxed because they’re viewed as separate legal entities by our government. Furthermore, they’re not allowed to wait until the end of the year to pay their taxes; they must estimate them and pay them quarterly based upon past earnings and current market indicators. If they fail to do this, penalties will be applied.                                  

Since employee wages/benefits, advertising costs, and a wide array of general operating expenses can be deducted from quarterly tax payments, it’s hard to see why so many corporations complain – although they are taxed at a much higher rate that many other business structures.

Other General Facts to Know About Corporate Taxation

  • If any owners of shares in a corporation also work as employees of the business, they must pay individual taxes on their earnings and bonuses like employees at other companies;

  • When corporations declare dividends, each shareholder has a duty to pay his/her taxes on those earnings. However, corporations must also pay taxes on these dividends -- so dividends are taxed twice;

  • Smaller corporations often manage to avoid this problem of double taxation on dividends. What they often do, since many of their shareholders also work for the company – they simply reward these people with specific types of earnings and bonuses that are tax-deductible -- instead of paying dividends that must be taxed;

  • Corporations often need to retain some profits or earnings each year in order to fund necessary growth (such as the possible creation of new product lines or to expand current sales territories). In response to this need, the government allows corporations to keep a certain percentage of their profits up to set levels. These amounts often vary between about $150, 000 to $250,000 a year, depending upon numerous factors. Always consult with an attorney to determine how much money your corporation can benefit from keeping in its own coffers each year for legitimate business needs.

 

To obtain help with handling all of your Georgia business planning needs, please contact the Law Offices of Shane Smith today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.


Shane Smith
Advocate for the Seriously Injured in Georgia