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What are the federal and state corporate tax rates for American businesses in 2024? Whether you're currently operating a business or about to launch, it's important to understand these tax rates and how they affect your business. It's also important to understand the many questions surrounding the Tax Cuts and Jobs Act (TCJA), which is set to begin expiring in 2025. Considering your corporate taxes while planning for the year ahead is essential. Use this guide to understand the changes to corporate taxes and the steps you can take to minimize your tax burden in 2024 and beyond.
Notable corporate income tax changes in 2024
Did the corporate tax rate change? Review notable changes and issues surrounding the federal and state corporate tax rate.
Federal
The federal corporate income tax rate of 21% remains unchanged from the previous year, with 2024 being relatively quiet in terms of notable changes. However, with a new administration assuming control of Washington in 2025 and the potential expiration of TCJA, some experts expect more sweeping federal corporate tax changes in the future.
State
Arkansas, Iowa, Kansas, Nebraska, New Jersey, and Pennsylvania all had reductions in their corporate tax rates starting in January. A handful of other states made retroactive changes to their corporate tax rates that impacted the 2023 tax year.
How Will Corporate Income Tax Rates Change After TCJA Expires?
Trillions of dollars in tax breaks will expire with the TCJA if Congress fails to take action. These tax breaks include:
Lower tax brackets
Higher standard deductions
Large child tax credit
Bigger estate and gift tax exemptions
20% tax break for pass-through businesses
The outcome of the 2024 US elections has provided some clarity regarding the direction of future corporate tax rates. During the campaign, Vice President Kamala Harris proposed a 28% corporate tax rate, while President-elect Donald Trump supported corporate tax rates of 15% and 20%.
According to the Bipartisan Policy Center, "TCJA stands as the most substantial overhaul of the business tax code in decades. Though many business provisions in TCJA are permanent law, several continue to inspire debate and deliberation among lawmakers, experts, and the business community, such as the tax treatment of R&D and bonus depreciation."
With 1-800Accountant's small business tax advisory services, your business can stay prepared for all of the incoming tax changes.
Federal corporate income tax rate
Since the TCJA was passed, the federal corporate tax rate has been 21%. This rate applies to taxable income, a small business's revenue minus expenses.
Calculating your federal corporate income tax burden is simple. In this example, the annual revenue is $100,000, and the expenses are $20,000.
1) Subtract expenses from your revenue.
$100,000 - $20,000 = $80,000 in taxable income.
2) Multiply your taxable income by the federal tax rate.
$80,000 x .21 = $16,800 you owe in federal corporate taxes.
State corporate income tax rate
Most businesses do not pay corporate income taxes because they are pass-through entities, including limited liability companies (LLCs) and partnerships. Businesses with this status pass income and deductions to the business owners, who must report their distributions on their personal income tax returns. If your business entity lacks a pass-through taxation feature, such as those formed as C corporations, you will likely be responsible for paying corporate income taxes both state and federally. While most states have a corporate income tax, South Dakota and Wyoming don't have any corporate tax.
Use this chart to determine your state's corporate tax rate for 2024.
State | Tax Rate |
|---|---|
6.5% | |
0% – 9.4% | |
4.90% | |
1% – 4.8% | |
8.84% | |
4.4% | |
7.5% | |
8.25% | |
8.7% | |
5.5% | |
5.75% | |
4.4% – 6.4% | |
5.8% | |
9.5% | |
4.9% | |
5.5% – 7.1% | |
3.5% – 5.5% | |
5% | |
5.5% – 7.5% | |
3.5% – 8.93% | |
8.25% | |
8% | |
6% | |
9.8% | |
4% – 5% | |
4% | |
6.75% | |
5.58% – 5.84% | |
7.5% | |
6.5% – 9% | |
4.8% – 5.9% | |
6.5% – 7.25% | |
2.5% | |
3.55% – 4.31% | |
4% | |
6.6% – 7.6% | |
8.49% | |
7% | |
5% | |
6.5% | |
4.85% | |
6% – 8.5% | |
6% | |
6.5% | |
7.9% |
Tax strategies to reduce your corporate income tax liability
Embrace these great strategies to reduce your business's corporate income tax liability.
- Review Business Structure. The first step to reducing corporate income tax liability is reviewing how your small business is structured. The correct entity classification for your small business situation will positively impact your annual tax burden.
- Tax Deductions and Credits. The second step is to select applicable tax deductions and credits. Keep more of your money in your pocket with every deduction and credit your business is eligible for.
- Tax Planning and Management. The third step is to embrace proper tax planning and management for your small business. If you properly plan and manage your taxes for the fiscal year, you will continue to minimize your small business tax burden.
Work with a tax professional
Growing your business while managing state and federal corporate tax responsibilities can be difficult and time-consuming. And you invite more work and headaches if you make a serious mistake or miss a tax due date. That's why so many business owners and entrepreneurs trust 1-800Accountant, America's leading virtual accounting firm, for their professional accounting needs.
Whether it's business tax advisory, small business taxes, or any of our professional services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.
Corporate Tax FAQ
How do pass-through entities’ federal taxes work?
Pass-through entities are not taxed at the federal level on business income. Instead, profits are passed through to ownership to be handled on their individual income tax returns. Generally, the personal income tax rate is more favorable than a federal corporate tax rate for owners.
What are non-taxable corporate transactions?
Certain corporate transactions are considered non-taxable, meaning some business activities are not subject to taxation. Corporate acquisitions where the buyer pays a seller mostly in stock are considered one of the more common examples of a non-taxable transaction.
What is the TCJA?
The TCJA, or Tax Cuts and Jobs Act, is a series of tax reforms and cuts passed in 2017 that will begin expiring in 2025. Due to the outcome of the 2024 US elections, there is an expectation that the TCJA will be extended in 2025, but no formal plans or details have been presented.
Could the TCJA be renewed in 2025?
Yes, there's a strong possibility that the TCJA, or Tax Cuts and Jobs Act, will avoid expiration in 2025. The new administration, which presided over the country during the introduction of the TCJA, is expected to opt to extend these tax cuts.
Is there any pending legislation that will change tax rates in 2024?
Tax changes can occur throughout the year, with some retroactively applied to previous years. Federal and state corporate tax rates are expected to remain unchanged for the remainder of 2024.
What is withholding tax?
The money employers deduct from their W-2 employees' gross wages and pay directly to the government is known as a withholding tax. The withheld amount functions as a credit to be applied to a W-2 employee's federal income taxes. W-2 employees will receive a tax refund if too much money is withheld throughout the fiscal year and may owe the Internal Revenue Service (IRS) if too little is taken out.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.