Corporate Income Tax 101 – The Definition, Filling, & Tips

Corporate Income Tax 101 – The Definition, Filling, & TipsWhether you run a private or public company, you need to pay corporate income tax (CIT) on your profits. The rule is simple but there are special regulations for companies that file a tax group and those that own more than others. Aside from companies, associations and foundations also have the same obligation – to file corporate income tax returns. What about legal entities like financial investment institutions? Well, they do not need to pay it. Individuals like self-employed don’t pay it either because they only need to form personal income tax returns.

corporate income tax

Recent Updates about Corporate Income Tax

The government keeps updating this type of tax based on the development in business and the market. The rate is based on the taxable amount, which is the taxable profit in a year that has been reduced by deductible losses. Here are the basic rates that apply in 2022:

  • The rate of CIT would be 15% if the taxable amount is € 395,000 or less.
  • The rate of CIT would be € 59,250 plus 25,8% if the taxable amount exceeds € 395,000.
  • 9% will be reduced on those rates if your company earns profits from innovative activities.

Also read : Learning Alternative Minimum Tax (AMT) and How to Reduce It

Take Advantages of Your Subsidiary Companies

Individually, each company should pay itscorporate income tax. The good news is that you can form a tax group or fiscal unity. That means your parent company will file a single tax with one or more of its secondary units. What is the benefit? With this tax group, you can deduct a loss incurred by a company from the profits gained by others in the group. However, some requirements apply in creating this tax group. The most important one is that your parent company has a minimum share of 95%. Also, all should have the same fiscal year and apply the same accounting policies. Not to mention a tax group only applies to companies established in certain countries like the Netherlands.

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How to File Corporate Income Tax

There are some ways you can file this tax for your business regardless of the size of the company. However, it should be based on the type of entity. Each type needs a different tax form on which you report your company income and expenses. Have no worries. The way you calculate your taxable business income for those types is the same. Here is how you do it:

1. Collecting records

First, you need to gather all business records before filling out any tax form. These include your company earnings and expenses. It will be easier to keep track of all records during the year using a spreadsheet or computer program. This way, you can easily calculate your company profits and deductions.

2. Use the right form

The next thing to do is to find the correct IRS corporate income taxform, which is based on how you operate your business. For small businesses, you can use a Schedule C attachment to report all of your business income and expenses along with your personal income tax return. If you run an LLC and you are the only owner, you can use the same form as above. As for corporations, you need to prepare a separate corporate tax return on Form 1120.

3. Filling it out

At this point, you are ready to fill out your form. It can be either using your Schedule C or Form 1120. if you use the first one, you can simply visit the IRS website to get a copy of it. This form is simple and only has two pages. There are lists of all the expenses you can claim. Your task is to calculate your business net profit or loss by subtracting your company expenses from earnings. Next, you should deliver that profit amount to your personal income tax form. As for Form 1120, you calculate in the same way. However, this one requires more details that don’t apply to a small company. Not to mention you should separate it from your personal income tax return.

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4. Always stick to deadlines

You should always pay attention to deadlines when filing a corporate income tax. If you fill a Schedule C, it will be delivered along with your Form 1040. That means your deadline will be April 15. As for Form the 1120S, your deadline is March 15 and you cannot send this along with your personal income tax return to the IRS.

Also read : 529 Tax Deduction Basic – The Benefits and Other Things

Several Tips Regarding Corporate Income Tax

Whether you file this tax using a DIY approach or by hiring a tax expert, you should consider these important things:

1. Know your business structure

Your type of business impacts how you pay taxes. A sole proprietorship is the most common structure. However, there are also limited liability companies, C corporation, and the S corporation. Each has distinct tax implications that you should understand and learn. At least, know yours! It is because some business structures have more tax advantages than others.

2. Find your tax deductions

The good news is that you can lower your corporate income tax bill by claiming tax deductions. There are many types of deductions you may be eligible for. However, each business likely has distinct eligibility depending on many factors. To maximize deductions, you need to itemize them on your tax return. It takes some time but it helps you lower your corporate tax bill significantly.

3. Be attentive to quarterly tax payments

In some cases, your company also needs to pay quarterly estimated taxes. You need to find out whether you have this obligation or not. The simplest solution is to hire a tax expert who can determine and calculate this type of tax payment. Also, the IRS offers free resources you can use to calculate quarterly payments and pay them directly.


The business environment keeps changing over time and the government makes new policies regarding corporate income tax. Knowing this fact, you should be able to keep up with updates and fill out your tax form accordingly. In this modern era, businesses have become multinational and it becomes more difficult to determine how much money your company needs to pay on income tax. The good news is that you can always call an expert to help you with all of these.



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