How to Calculate Corporate Taxable Income

As a businessman, you should perfectly know how to calculate corporate taxable income. By doing this, you will be able to set your finances on the right track.

If you don’t know how to do it, this article will provide you with all the information you need to know.

In order to compute your income tax, you need to have IRS Form 1120( Bear in mind that the Internal Revenue Service calculates the corporate income in a very different way than your CPA does. In the succeeding paragraphs, you will be able to know the ways on how to correctly calculate the federal corporate tax liability. Knowing how to do this will help level your expectations well.

But wait! Bear in mind that if your company is registered with the Internal Revenue Service as an S Corporation, you are exempted from this type of tax liability.

What You Need to Know Before Preparing the IRS Form 1120

As a C Corporation, you need to file the IRS Form 1120 at the 3rd month following the corporate tax year’s end. In order to receive a 6 month extension to file the Form 1120, your corporation should prepare and file Form 7004 at the Form 1120’s original due date. This extension is known to apply upon the filing of the corporate tax return and not the corporate taxes payment. Upon the request fo an extension, the corporate taxes need to be completely paid.

Prepare the Form 1120

You need to do this by reporting the revenue of the corporation and subtracting the costs of the products sold. The costs of the goods that are sold are applicable to the construction and manufacturing entities that include the following items: subcontractors, direct labor, job costs and materials. On the other hand, the administrative and general expenses include office expenses, amortization, depreciation, salaries and rent.

Report the Taxable Income

Next, you should report the taxable income on the first page, line 28 of the IRS Form 1120. If your corporation has a net operating loss from the prior years to the offset current year profit, just specify the net operating loss on the 29th line. Get the difference of the net operating loss and the taxable income and show the taxable income on the first page of line 30.

The Formula

Next, you have to calculate the federal tax on the taxable income of the corporation by using the table on the 18th page. Let us take $500,000 as the taxable income and $170,000 as the federal income tax. The formula in calculating the income tax is: $500,000 - $335,000 = $165,000; $165,000 x 0.34 = $56,100; $56,100 + $113,900 = $170,000.

The Last Step

You need to enter the resulting income tax payable on the first page, line 31st of the IRS Form 1120. You also need to reduce the amount of income tax payable for the estimated tax payments made during the year and the overpayments applied from the previous years.


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