How to use the corporate tax calculator
Corporate tax estimates a C-corporation’s income tax for a year. Pass-through vs C-corp compares the total tax on the same profit under the two structures.
- Revenue. Sales and service income for the year.
- Deductible expenses. Cost of goods sold, salaries, rent, depreciation, interest and other costs the tax rules allow. Some book expenses are not deductible (most fines, part of business meals), so taxable income can differ from accounting profit.
- Other income. Interest and other non-operating income, or a negative number for a non-operating loss.
- State corporate rate. Your state’s rate. Enter 0 for a state without corporate income tax.
How corporate tax is calculated
State tax = Taxable income × State rate
Federal tax = (Taxable income − State tax) × 21%
Combined rate = State rate + 21% × (1 − State rate)State corporate tax is a deductible expense for federal purposes, which is why the federal rate applies to income after state tax. States calculate their own taxable income, so the state figure is an approximation.
A worked example
A fictional company, Company A, has $2,000,000 of revenue, $1,600,000 of deductible expenses and $20,000 of interest income. Taxable income is $420,000.00.
At a 6% state rate, state tax is $25,200.00. Deducting it leaves $394,800.00 of federal taxable income, and the 21% federal tax is $82,908.00. Total tax is $108,108.00, a combined effective rate of 25.74%, and profit after tax is $311,892.00.
The state deduction is worth $5,292.00 of federal tax here. Without any state tax the bill would be $88,200.00 (21.00%); at a 10% state rate it would be $121,380.00 (28.90%).
C-corporation or pass-through: a simplified comparison
A C-corporation’s profit can be taxed twice: once at the 21% corporate rate, and again when it is paid to the owner as a dividend. A pass-through business (sole proprietorship, partnership, S-corporation or a default LLC) is taxed once, at the owner’s individual rate.
On $200,000 of profit, the corporation pays $42,000.00. If it pays out all of the rest as qualified dividends taxed at 15%, the owner pays $23,700.00 more, for $65,700.00 in total (32.9%). As a pass-through taxed at a flat 32%, the same profit costs $64,000.00.
Here is how the comparison shifts with the inputs:
| Scenario | C-corp total tax | Pass-through tax |
|---|---|---|
| All profit paid out (example) | $65,700.00 | $64,000.00 |
| Half paid out | $53,850.00 | $64,000.00 |
| Nothing paid out | $42,000.00 | $64,000.00 |
| 20% QBI deduction applied to the pass-through | $65,700.00 | $51,200.00 |
| Owner in the 37% bracket, 20% dividend rate | $73,600.00 | $74,000.00 |
Three inputs drive the result:
- How much is paid out. Profit kept in the corporation has paid only corporate tax so far. That makes a C-corp look cheaper in any one year, but the dividend tax is only deferred while the profit stays in the company; it applies when the money is paid out later.
- The owner’s rate. The higher the owner’s bracket, the more attractive a 21% corporate rate on retained profit becomes.
- The QBI deduction. Many pass-through owners can deduct up to 20% of qualified business income, which cuts the tax on that income by up to a fifth. It has income limits, wage and property tests, and restrictions for many service businesses, so treat it as a best case.
What this calculator does not include
- Payroll and self-employment tax. A sole proprietor or partner also pays self-employment tax on profit; S-corporation owners pay payroll tax on their salary. Corporations pay payroll tax on wages too.
- Owner salaries. Owners who work in a corporation usually take a salary, which the company deducts and the owner pays tax on as wages. That shifts profit from the corporate to the individual side.
- NIIT and state individual tax on dividends and pass-through income. The dividend tax calculator covers the dividend side in more detail.
- Corporate alternative minimum tax, credits, accumulated earnings tax and state franchise or gross receipts taxes.
- Bracketed individual tax. The comparison uses one flat marginal rate for the owner.
The comparison is a first look, not a choice of entity: the right structure also depends on plans to raise capital, sell the business, and state rules.