The amount you owe in taxes is called tax liability. For people who are working somewhere, it is a simple matter that consulting the tax tables for the year and calculating the tax on their income by getting a related form. On the flip side, who is self-employed or engaged in any business, the process is a bit complex. Here, in this article, we will guide you through the whole process of tax calculation as per the entity and business type. You can calculate the state tax burden through C corp tax calculator.
A summary of how to calculate tax liability
After knowing the type of entity, we may easily figure outhow much federal tax will impose on your income from the business. It varies according to the Corporate taxes whether it is C corporate or not. If you are into a C corporation, then you will get taxed twice both at corporate as well as shareholder levels. Your income will be taxed according to the flat rate, like it maybe 21%.
If you are not into the C Corporation, also known as a flow-through entity), then your rate of tax will rely on the taxable income and the status of filing.
Calculation of tax liability from taxable income
The gross tax liability is the difference between the taxable income and the tax deductions.The total income tax liability is thus calculated based on gross tax liability and the difference between the Gross tax liability and any tax credits. But before you begin with number play, you should understand the entity first. The entity is the base to calculate the taxes.
Get to know your entity type
There are various business entities available there such as C corp, sole prop, partnership, and so on. But to figure out the taxation amount that your business owes, you need to find out your entity type. If you are not so sure about this matter, then it is advisable to consult with your accountant and find it out. If you are running small operations, has no accountant and you have never thought of your entity type, then the government will automatically categorize you in the field of a sole proprietor.
C Corporations are the only business type that pays corporate income taxes and it can be easily calculated with the help of the C Corp calculator. If the business is not a C Corp, then it can be also regarded as a flow-through entity because all profits and losses occurred in business flows through the owners as well as business shareholders who pay taxes at an individual rate of tax.
The tax calculation for C corporations gets simplified through the “The Tax Cuts and Jobs Act”by replacement of the graduated corporate tax rate schedule that involved various rates of taxes with a tax rate, such as 21 percent. In simple words, if you are a C Corporation, then it does not matter how much income your business has, the tax rate will be the same.