A C corporation is an entity that operates independently of its owners and is taxed separately. This leads to double taxation when the corporation is taxed (currently at 21%) and dividends distributed to the owners are also taxed. C corporations differ from limited liability companies where at least partial double taxation avoidance provisions are in place.
Business expenses excluding large machinery, land, or any asset to be used over a number of years should be added up. Raw materials used in direct production are the cost of sales, whereas operational expenses such as salaries and wages are called selling, general and administrative expenses. Interest payments also fall in the same category.
These expenses include assets with a useful life of more than a year, such as machinery, vehicles, real estate, etc. The total cost of these items is not deducted in the first year but is spread over the years and deducted as depreciation. The depreciation schedule differs based on tax laws.
Step 7: Income Tax Liability - Reduce any tax credits from the taxes payable.
The revenue would include revenue from sales, investments (interest or dividends), remuneration for patent/copyright infringement, franchise fees, etc. The type of revenue can differ, and some of the revenue may have to be adjusted over a number of years based on the accrual principle. For example, a construction company may receive contract value up front, but the work may take 5 years. Adjustments have to be made over 5 years or on the basis of work done.
A C corporation operates independently of its owners and is taxed separately. C corporations are the only companies that are taxed twice, known as double taxation. They are taxed when they earn profit, and the income distribution is also taxed as regular income of the owners. Steps to calculate taxable income and tax liability include:
Deduction of capital and non-capital business expenses from revenue yields taxable income.