The subject of corporation tax benefits is a complicated one. Most types of business entities – sole proprietorships, partnerships, subchapter S corporations, and limited liability companies - that have not elected to be taxed as regular (or C) corporations have taxes that pass through the business. These taxes appear later on when the owners file their individual tax returns. A regular C corporation and any LLC that elects to be taxed like a corporation are separate tax entities that have to file their own tax returns and pay their own taxes.

In the previous decade, the IRS issued its so-called “Check the Box” regulations. Effective beginning 1997, these regulations allow taxpayers to choose the tax status of a business entity without regard to its corporate (or non-corporate) character. Thus, a business entity with more than one owner can elect to be classified as either a partnership or a corporation in order to gain corporation tax benefits. An entity with only one owner can elect to be classified as a corporation or a sole proprietorship. In the event of default (that is, where taxpayer does not make an election), multiple-owner businesses are classified as partnerships and single-person businesses as sole proprietorships.

A business entity that is actually incorporated under state law or one that is required to be a corporation under federal law will have access to corporation tax benefits. Limited liability companies are not automatically treated as being incorporated under state law, which is why they must elect either corporation or partnership status.

Corporation tax benefits under Federal income taxation may acquire more meaning if compared with the treatments to individual taxpayers.

The gross income determination for corporations and individuals is done in the same manner. This includes income derived from business, compensation for services rendered, gains from dealings in property, interest, rents, dividends, to name but a few. Individual and corporation tax benefits contain certain inclusions of gross income, but corporate taxpayers are allowed less exclusions. For instance, both classes of taxpayer may exclude interest on municipal bonds from gross income.

Gains and losses from property transactions are treated similarly. Where non-taxable exchanges are concerned, individual and corporation tax benefits allow non-recognition of gain or loss on a like-kind exchange. Both may defer recognized gain on an involuntary conversion of property. Neither corporations nor individuals are allowed to deduct losses on sales of property to related parties or on wash sales of securities (with certain exceptions). The business deductions of corporations also parallel those of individuals, although certain credits that are personal in nature, like child care credit, are not available to corporations.

A further corporation tax benefit is that corporations pay federal income tax at a rate lower than that of most individuals for the first $75,000 of their profits – 15% of the first $50,000 of profit and 25% of the next $25,000. Professional corporations are charged a flat 35% tax rate. All allowable corporate deductions are treated as business deductions, making the determination of adjusted gross income, which is so essential for individual taxpayers, of little relevance to the corporation. Corporate taxable income is computed simply by subtracting from gross income all allowable deductions and losses. Individuals, on the other hand, have to consider itemized deductions or the standard deduction.