Corporate tax is a tax levied by the federal, state, or local governments on a company’s earnings after deducting the costs of raw materials, marketing, R&D, and operations. Corporate taxes differ by country. Regardless, taxes can be reduced through various deductions and tax reduction techniques, so the final rate is always lower than the stated one.
Companies can reduce their taxes by demonstrating certain business essential expenditures such as payrolls, employee benefits and bonuses, insurances, travel expenses, bad debts, other taxes, bookkeeping expenses, legal services, advertising costs, and so on.
Companies can avoid double taxation by forming a S corporation. Because the income of a S corporation is distributed to the shareholders, the corporation is not taxed. Rather, the shareholders are taxed as part of their overall income. On the other hand, business owners can avoid paying taxes by declaring their earnings as part of the company’s earnings.