What Is Corporate Tax? A Beginner’s Guide for Business Owner

Starting a business comes with plenty of excitement — and responsibility. One of the most important obligations business owners face is taxation. Among the different types of taxes, corporate tax is a key area that affects many companies, especially those structured as corporations.

But what exactly is corporate tax, how does it work, and does it apply to your business?

In this beginner’s guide, we’ll explain what corporate tax is, who needs to pay it, how it’s calculated, and what business owners should do to stay compliant and save money.

What Is Corporate Tax?
Corporate tax is a direct tax levied by the government on the profits earned by corporations. In simple terms, once a corporation earns income and subtracts its operating costs and other allowable expenses, the remaining profit is taxed at a specified rate. This tax is paid by the company itself, not the individual shareholders.

Corporate tax differs from personal income tax in that it is applied to the business as a separate legal entity. Corporations are considered distinct from their owners under the law, and as such, they must file their own tax returns and meet their own tax obligations.

Who Pays Corporate Tax?
Corporate tax is paid by C corporations — one of the most common types of business structures in the United States. A C corporation (or C-corp) is a legal entity that is separate from its owners (shareholders), which means it can own property, enter contracts, sue or be sued, and yes — pay taxes.

If your business is registered as a:

C Corporation: You are required to pay corporate taxes on your net income.

S Corporation: You’re typically exempt from federal corporate tax because profits "pass through" to the owners' personal tax returns.

LLC (Limited Liability Company): LLCs can elect how they are taxed — either as a sole proprietorship, partnership, or corporation.

Sole Proprietorship or Partnership: These are generally not subject to corporate tax, as income passes directly to the owners.

If you’re unsure of your tax classification, it’s essential to consult with a tax advisor or accountant to determine whether you fall under corporate tax rules.

What Is the Current Corporate Tax Rate?
As of 2024 (and still current in 2025), the federal corporate income tax rate in the United States is 21%. This rate was established under the Tax Cuts and Jobs Act (TCJA) of 2017 and applies to all corporate taxable income.

However, corporations may also be subject to state and local corporate taxes, which vary depending on where your business is incorporated or operates. Some states charge a flat rate, while others use a graduated system based on income brackets.

How Is Corporate Tax Calculated?
Corporate tax is calculated based on your company’s taxable income, which is your total income after subtracting all deductible business expenses.

Here’s a simplified formula:

Taxable Income = Gross Revenue – Allowable Deductions

Corporate Tax = Taxable Income × Corporate Tax Rate

Examples of Deductible Business Expenses:
Employee salaries and wages

Rent and utilities

Office supplies and equipment depreciation

Marketing and advertising costs

Insurance premiums

Interest on business loans

Professional services (accountants, lawyers, etc.)

Proper recordkeeping and accounting are essential to ensure you're claiming every deduction you're entitled to. Missing or poorly documented expenses can increase your taxable income — and your tax bill.

What Is Double Taxation?
One of the downsides of the corporate tax structure is something known as double taxation.

Here’s how it works:

The corporation pays taxes on its profits at the corporate level.

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