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What is the corporate tax rate and what is the current corporate tax rate are common questions among business owners and those who are looking to launch.
If you form your business as a corporation, it's imperative to understand your federal and state corporate tax rate for 2023.
Whether you're already operating a C corp or are about to get one up and running, it's essential to consider your corporate taxes while planning for the year ahead. Use this blog as your guide to understanding the changes to corporate taxes and the steps you can take to minimize your tax burden.
How do corporate taxes work?
The federal corporate tax rate is a flat fee, while states have different rules or might not collect any corporate taxes!
C corporations use IRS Form 1120 to report income, gains, losses, deductions, and credits and calculate income tax liability. Since C corporations and ownership are separate entities, you'll pay taxes at the corporate income tax rate instead of the personal tax rate.
The state and federal corporate tax rates can change over time, so let's see what's new for 2023.
Notable corporate income tax changes in 2023
Did the corporate tax rate change? There have been corporate tax rate changes that you should be familiar with at both the federal and state level for 2023.
Federal
Corporations earning $1 billion in profits will now be subject to a new minimum federal corporate tax of 15%. This tax is based on income in a corporation’s financial statement, not the corporation’s taxable income.
Corporations will also receive a 1% tax on the value of stock buybacks.
State
Several states reduced their top corporate taxes for many reasons, including the retention of businesses considering a move to a lower-tax state. The states that reduced corporate tax rates include New Hampshire, Pennsylvania, Idaho, Iowa, and Arkansas.
Federal corporate income tax rate
Since passing the Tax Cuts and Jobs Act of 2017, the federal corporate tax rate has been 21%. This rate applies to taxable income, which is a small business's revenue minus expenses.
Calculating your federal corporate income tax burden is simple. For this example, the annual revenue is $100,000 with $20,000 in expenses.
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
While a vast majority of states have a corporate income tax, a few states don't have any corporate tax at all, these states include South Dakota and Wyoming.
Note* Nevada, Ohio, Texas, and Washington don't have a corporate income tax, but they do have a gross receipts income tax.
Use this chart to determine your state's corporate tax rate.
| State | Tax Rate |
| Alabama | 6.50% |
| Alaska | 0% – 9.4% |
| Arizona | 4.90% |
| Arkansas | 1% – 5.9% |
| California | 8.84% |
| Colorado | 4.55% |
| Connecticut | 7.50% |
| D.C. | 8.25% |
| Delaware | 8.70% |
| Florida | 5.50% |
| Georgia | 5.75% |
| Hawaii | 4.4% – 6.4% |
| Idaho | 5.80% |
| Illinois | 7% (+2.5% replacement tax) |
| Indiana | 4.90% |
| Iowa | 5.5% – 8.4% |
| Kansas | 4%-7% |
| Kentucky | 5% |
| Louisiana | 3.5% – 7.5% |
| Maine | 3.5% – 8.93% |
| Maryland | 8.25% |
| Massachusetts | 8% |
| Michigan | 6% |
| Minnesota | 9.80% |
| Mississippi | 4% – 5% |
| Missouri | 4% |
| Montana | 6.75% |
| Nebraska | 5.58% – 7.25% |
| New Hampshire | 7.60% |
| New Jersey | 6.5% – 9% |
| New Mexico | 4.8% – 5.9% |
| New York | 6.5% – 7.25% |
| North Carolina | 2.50% |
| North Dakota | 1.41% – 4.31% |
| Oklahoma | 4% |
| Oregon | 6.6% – 7.6% |
| Pennsylvania | 8.99% |
| Rhode Island | 7% |
| South Carolina | 5% |
| Tennessee | 6.5% |
| Utah | 4.85% |
| Vermont | 6% – 8.5% |
| Virginia | 6.00% |
| West Virginia | 6.50% |
| Wisconsin | 7.90% |
Tax strategies to reduce your corporate income tax liability
There are steps you can take to reduce your corporate income tax liability.
Review Business Structure
The first step is reviewing how your small business is structured. For example, an LLC is taxed differently than a C corp. 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. Why pay more when you don't have to?
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 year, you will continue to minimize your small business tax burden.
Work with a tax professional
It can be difficult and time-consuming to grow your small business while shrinking your corporate income tax burden. That's why so many people turn to 1-800Accountant, America's leading virtual accounting firm for small businesses, 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.
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.