After you figure a corporation's taxable income, you figure its tax. This section discusses the tax rates, credits, recapture taxes, and alternative minimum tax.
If the corporation elects to deduct the one-time dividends received deduction under section 965 of the Internal Revenue Code, see the Instructions for Form 8895 before figuring its tax.
Most corporations figure their tax by using the following tax rate schedule. An exception to that rule applies to qualified personal service corporations. Other exceptions are discussed in the instructions for Schedule J, Form 1120, or Part I, Form 1120-A.
|If taxable income (line 30, Form 1120, or line 26, Form 1120-A) is:|
|Over—||But not over—||Tax is:||Of the amount over—|
|50,000||75,000||$ 7,500 + 25%||$50,000|
|75,000||100,000||13,750 + 34%||75,000|
|100,000||335,000||22,250 + 39%||100,000|
|335,000||10,000,000||113,900 + 34%||335,000|
|10,000,000||15,000,000||3,400,000 + 35%||10,000,000|
|15,000,000||18,333,333||5,150,000 + 38%||15,000,000|
A qualified personal service corporation is taxed at a flat rate of 35% on taxable income. A corporation is a qualified personal service corporation if it meets both of the following tests.
- Substantially all the corporation's activities involve the performance of personal services (as defined earlier under Personal services).
- At least 95% of the corporation's stock, by value, is owned, directly or indirectly, by any of the following.
- Employees performing the personal services.
- Retired employees who had performed the personal services.
- An estate of the employee or retiree described above.
- Any person who acquired the stock of the corporation as a result of the death of an employee or retiree (but only for the 2-year period beginning on the date of the employee's or retiree's death).
The tax laws give special treatment to some types of income and allow special deductions and credits for some types of expenses. These laws enable some corporations with substantial economic income to significantly reduce their regular tax. The corporate alternative minimum tax (AMT) ensures that these corporations pay at least a minimum amount of tax on their economic income. A corporation (other than a small corporation exempt from the AMT) owes AMT if its tentative minimum tax is more than its regular tax.
The tentative minimum tax of a small corporation is zero. This means that a small corporation will not owe AMT.
A corporation is treated as a small corporation exempt from the AMT for its current tax year if that year is the corporation's first tax year in existence (regardless of its gross receipts for the year) or:
- It was treated as a small corporation exempt from the AMT for all prior tax years beginning after 1997, and
- Its average annual gross receipts for the 3-tax-year period (or portion thereof during which the corporation was in existence) ending before its current tax year did not exceed $7.5 million ($5 million if the corporation had only 1 prior tax year).
Use Form 4626, Alternative Minimum Tax – Corporations, to figure the tentative minimum tax of a corporation that is not a small corporation for AMT purposes. For more information, see the Instructions for Form 4626.taxmap/pubs/p542-008.htm#TXMP2b95e4dc
A corporation's tax liability is reduced by allowable credits. The following list includes some credits available to corporations.
- Credit for federal tax on fuels used for certain nontaxable purposes (see Publication 378, Fuel Tax Credits and Refunds).
- Credit for prior year minimum tax (see Form 8827).
- Foreign tax credit (see Form 1118).
- General business credit.A corporation's general business credit consists of its carryforward of business credits from prior years plus the total current year business credits. For a list of allowable business credits, see Form 3800.
- Nonconventional source fuel credit (see Form 8907).For tax years ending after December 31, 2005, the nonconventional source fuel credit is a general business credit included on Form 3800.
- Possessions corporation tax credit (see Form 5735).The Small Business Job Protection Act of 1996 repealed the possessions credit. However, existing credit claimants may qualify for a credit under the transitional rules for tax years ending before January 1, 2006. For guidance regarding continuation of business after December 31, 2005, see Notice 2005-21 in Internal Revenue Bulletin 2005-11.
- Qualified electric vehicle credit (see Form 8834).
- Qualified zone academy bond credit (see Form 8860).
- Clean renewable bond credit (see Form 8912).
- Gulf bond credit (see Form 8912).
A corporation's tax liability is increased if it recaptures credits it has taken in prior years. The following list includes credits a corporation may need to recapture.
- Employer-provided childcare facilities and services credit (see the instructions for Form 8882).
- Indian employment credit (see the instructions for Form 8845).
- Investment credit (see the instructions for Form 4255).
- Low-income housing credit (see the instructions for Form 8611).
- New markets credit (see the instructions for Form 8874).
- Qualified electric vehicle credit (see the instructions for Form 8834).