How is income taxed in the corporation?
Corporations are subject to double taxation. This means that profits of the corporation are taxed to the corporation at the applicable tax rate. The corporation is a taxpayer. Unlike an individual, who is subject to a tiered tax system based on the amount of earned income, starting in 2018, the corporation is subject to a fixed income tax rate (currently 21%). Prior to 2018, corporate profits were subject to a similar tiered tax structure. The tax rate generally went up based on marginal income. When the corporation distributes any of these profits to the shareholder, the shareholder is subject to taxation at the dividend rate (currently 15%).