Posted by Esther N. Phahla, CPA, A Professional Corporation

5 Things You Need To Know About Corporate Tax Rate on Capital Gains

5 Things You Need To Know About Corporate Tax Rate on Capital Gains

Taxes are the lifeblood of the government. It is a levy which placed on the profit of an institution to raise funds. It is also considered as a legal obligation to the government, owed by businesses and individuals. Corporate tax is a product of legislation by our policymakers and experts to regulate business and economy. It is a kind of tax imposed on firms and corporations both public and private.  

For a corporation to expand, investments must come in and they tend to sell some capital assets in a form of stocks or bonds. They conduct an initial public offering – selling the company’s shares of stocks at a certain price. Thus, buyers now become a shareholder of the company.  The profit realized on the sale of assets shall be taxable which now called as capital gains tax. Taxpayers, investors, and buyers must have knowledge of basic facts capital gains tax to understand it.

1. Know the basics. Capital gains occurred when you sell a property, stocks or bonds for more than you spent to acquire it.  Tax rates are uniform and fairly distributed in accordance with the financial status and capacity of every taxpayer. In the United States, corporations pay their income taxes based on the net total of all their capital gains. Some investors at the end of the year, sell assets that are worth less than the amount paid to acquire it. It is a strategy to obtain tax benefits. Capital losses cancel out the capital gains in the same year. The remaining amount after offsetting shall be the basis for the calculation of taxable gains.

2. You must know the law. Legislators formulate policies and laws to regulate taxations, they tend to repeal laws. Taxpayers must know the current law that governs and in force. In 2017, ordinary tax rates range from 10% to 39.6% based on your taxable income for a year. Short-term capital gains are taxed similarly as ordinary income. Short-term means that any income which derived from an investment held for less than a year. However, long-term capital gains are taxed at a lower rate which encourages to invest in assets that can be held for more than a year.

3. Corporate taxation is beneficial for business owners than paying an individual taxpayer. Corporation’s taxable income may be reduced by deducting all the current expenses, purchased real estate and investments for the purpose of generating income. It can include employees’ salaries, health benefits, bonuses, and expenses for bookkeeping, tax preparation fees, and other legal fees. A corporation is also permitted to deduct the entire amount of losses. The profit earned may also be left in the corporation for future tax planning and advantages.

4. Corporations as a Tax shelter. Corporate form a barrier between business and its owners. The legal system created the separation but some crafty individuals used corporations to hide their properties. They prefer to invest individual assets in a corporation which then gives a headache to accountants, tax preparers, and collectors, having difficulty on which such properties must be tagged or belonged.

5. Double taxation is an integral issue for corporations. It happens when net income is distributed among the shareholders, then these individuals are subject to income tax based on the dividends received. In this case, income is taxed both at the corporate and individual level. Double taxation precludes wealthy individuals from enjoying a good life from receiving large amounts of dividends and paying zero taxes on personal income. The international community is in action to suppress and avoid double taxation through signing treaties.

Capital gains are not solely for wealthy people, an ordinary individual may also try this investment. For instance, the buy and sell of real properties such as land, houses, condos, and buildings. Selling a certain property for a higher price than the purchase price, the difference to which is capital gain. It encourages individuals to invest in long-term assets.

Taxation is a legal obligation that must be performed by every individual as a sign of adherence to the law and to the authority. Taxpayers must always pay their taxes on the right amount and on the right time to avoid penalties and fines. Tax preparers and tax collectors are only tasked to execute the law. The law which was passed by the legislators you elected. Lastly, “render to Caesar the things that are Caesar’s; and to God the things that are God’s”.

Esther N. Phahla, CPA, A Professional Corporation
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