Financial Glossary
Corporate Income Tax
Corporate income tax is a tax levied on the net profits of a corporation, calculated as revenue minus deductible expenses. It differs from individual income tax, which applies to the earnings of people, including wages and income that passes through to owners of sole proprietorships, partnerships, and S corporations. A C corporation pays corporate income tax at the entity level, and its shareholders may also be taxed on dividends, a structure often described as double taxation.
Problem & Application
For an owner-operated business, the choice between a C corporation, an S corporation, or a pass-through entity directly determines whether profits face corporate income tax, individual tax, or both. The right structure depends on how much profit you reinvest, how you pay yourself, and your long-term exit plans. Getting entity selection wrong can mean paying tax twice on the same dollar or missing pass-through benefits entirely.
In Short
Knowing how corporate income tax differs from individual tax is central to choosing the entity that minimizes what your business owes.