Corporate Tax Rate and Brackets in the United States

If you own a company, you need to understand how much tax you owe and how it affects your profits taxes are a big part of running a business. The corporate tax rate is the percentage of a company’s profit that must be paid to the government. Many business owners find taxes difficult, but it doesn’t have to be. Let’s explore corporate tax rates, how they work, and ways to reduce your tax bill.

What Is the Corporate Tax Rate?

The corporate tax rate is a tax that businesses must pay on their profits. When a company makes money, it has to pay for things like salaries, rent, and other expenses. The remaining amount is called taxable income, and that’s what the government taxes.

For example, if a company earns $500,000 and has $150,000 in expenses, the taxable income is $350,000. If the corporate tax rate is 21%, the company would owe $73,500 in taxes.

Federal Corporate Tax Rate in the U.S.

The corporate tax rate in the U.S. is 21% at the federal level. This means all corporations, big or small, pay a flat 21% tax on their profits. Before 2018, the tax rate was 35%, but it was reduced to encourage business growth. The current 21% rate makes the U.S. more competitive globally and allows companies to reinvest more money into their businesses.

State Corporate Tax Rates

In addition to federal tax, many states also charge a corporate tax. These rates vary by state, with some charging nothing at all.

Corporate tax rates for each state in 2025

Some states, like Texas and Nevada, don’t have corporate taxes but charge gross receipts taxes instead. This tax is based on total revenue, not just profits.

How to Reduce Corporate Taxes

Business owners are always looking for ways to lower their tax bills. While you can’t avoid paying taxes, there are legal ways to reduce them.

Deduct Business Expenses

The best way to lower taxes is by claiming deductions. Businesses can subtract necessary expenses from their taxable income, which lowers the amount they owe.

Here are some common business deductions:

• Employee salaries and benefits

• Business travel expenses

• Marketing and advertising costs

• Rent and utilities

• Equipment and software

• Charitable donations

Take Advantage of Tax Credits

One of the most effective ways for businesses to reduce their tax liability is by utilizing tax credits. Unlike deductions, which lower the total taxable income, tax credits directly reduce the amount of tax a business owes, dollar-for-dollar. This means if your business qualifies for a $5,000 tax credit, it will directly cut $5,000 off your final tax bill, making them even more valuable than deductions in many cases. There are several types of tax credits available, each designed to support businesses that invest in innovation, sustainability, and workforce development.

Here are some of the most popular ones:

Research & Development (R&D) Credit

This credit is available for businesses that invest in innovation by developing new products, processes, or technology. If your company is actively working on improving existing services or launching groundbreaking products, you may qualify for this credit. The R&D tax credit can cover expenses related to wages, supplies, and contract research.

Energy-Efficient Business Credits

As the world moves toward more sustainable energy solutions, businesses that invest in renewable energy sources like solar panels, wind turbines, or energy-efficient equipment can qualify for this tax credit. The government encourages companies to reduce their carbon footprint by offering tax incentives for adopting greener practices.

Work Opportunity Tax Credit (WOTC)

Hiring employees from specific target groups, such as veterans, individuals receiving government assistance, or formerly incarcerated individuals, can make businesses eligible for this credit. The goal of WOTC is to encourage companies to provide job opportunities to people who may face employment challenges, helping both businesses and communities grow.

Consider S Corporation Status

Choosing an S Corporation status instead of a C Corporation can help reduce the corporate tax rate by avoiding double taxation. While C Corporations pay taxes on profits and shareholders pay again on dividends, S Corporations pass profits directly to owners, who are taxed only at the individual level. To qualify, a business must have 100 or fewer shareholders, issue only one class of stock, and be U.S.-owned. Though it offers tax benefits, businesses should ensure it aligns with their structure and compliance requirements.

Use Section 179 to Deduct Equipment Costs

If your business buys equipment, vehicles, or software, you can deduct the full cost in the same year instead of spreading it over time. Section 179 deduction can help businesses save a lot on taxes.

How SK Financial CPA Can Help U.S. Businesses with the Corporate Tax Rate

Understanding corporate taxes doesn’t have to be stressful. SK Financial CPA makes it easy for business owners to understand tax laws, find deductions, and take advantage of tax credits to lower their tax bills. Whether you run a small business or a large corporation, our experts provide personalized guidance to help you choose the best tax strategies, including the right structure S Corporation, C Corporation, or LLC so you don’t end up paying more than necessary. We focus on real solutions, not automated responses, ensuring you get expert advice tailored to your business.

We also value your privacy and believe in building long-term relationships with our clients. That’s why we offer a referral program, allowing you to earn cash rewards or discounts on our services when you refer others to us. Plus, booking a meeting with your dedicated account representative is quick and easy no chatbots, no delays, just real experts ready to help.

To get started, we offer a free 30-minute consultation, where our industry-leading experts will walk you through the best corporate tax strategies for your business. Book your consultation today and let us help you save money while staying fully compliant with tax laws.

Corporate Tax vs. Other Business Taxes

Not all businesses have to pay corporate taxes. If you’re starting a new business, you might wonder if you should form a corporation or a different type of business.

Here’s a quick comparison of different tax structures

C Corporations are the only type that pays corporate tax, while S Corporations, LLCs, and Sole Proprietorships pass profits directly to the owners.

Final Thoughts

Understanding corporate taxes is important for every business owner, whether you run a small startup or a large company. Knowing how federal and state taxes work, along with smart tax-saving strategies, can help you reduce your tax burden and keep more of your profits. The current federal corporate tax rate is 21%, but state taxes vary, with some states charging additional taxes and others having none at all. Businesses can lower their taxes by claiming deductions for expenses like salaries, rent, and marketing, or by taking advantage of tax credits that directly reduce the amount owed. Choosing the right business structure, such as an S Corporation instead of a C Corporation, can also help avoid double taxation. However, corporate tax rules can be complex, and planning ahead is key to minimizing what you owe. Working with a trusted tax professional, like SK Financial CPA, ensures your business follows tax laws while making the most of the deductions and credits available. If you're unsure about corporate taxes or need expert guidance, now is the best time to get professional advice.

FAQs

1. What is the current corporate tax rate in the U.S.?

As of 2025, the corporate tax rate in the United States is 21% at the federal level. However, businesses may also be subject to state corporate taxes, which vary depending on the state where the company operates. Some states, like Texas and Nevada, do not have a corporate income tax, while others have rates as high as 9.8%.

2. How can businesses lower their corporate tax rate?

Businesses can reduce their corporate tax rate by claiming deductions for eligible expenses such as salaries, rent, utilities, and business travel. They can also take advantage of tax credits, like the Research & Development Credit or Work Opportunity Tax Credit, to directly reduce their tax bill. Choosing the right business structure, such as an S Corporation, can also help avoid double taxation.

3. Do all businesses have to pay the corporate tax rate?

Not all businesses pay the corporate tax rate. C Corporations are subject to corporate tax, but S Corporations, LLCs, and sole proprietorships pass profits directly to owners, who pay taxes at their individual income tax rates instead. Choosing the right structure depends on the business’s size, income, and long-term goals.

4. Does my business have to pay both federal and state corporate taxes?

Yes, most corporations in the U.S. pay the 21% federal corporate tax rate, and many also pay state corporate tax based on their location. Some states have a flat rate, while others use a tiered system. A few states, like South Dakota and Wyoming, do not charge a state corporate tax at all.

5. How do tax deductions and credits help lower the corporate tax rate?

Tax deductions and credits can significantly reduce the corporate tax rate a business pays. Deductions lower taxable income by allowing businesses to subtract expenses like employee wages, office rent, and marketing costs. Tax credits, on the other hand, directly reduce the tax amount owed. For example, the Research & Development Credit rewards companies investing in innovation, while the Work Opportunity Tax Credit helps businesses that hire employees from specific groups. Using both deductions and credits wisely can lead to major tax savings.

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