Is the U.S. Corporate Tax Rate the Highest in the World?
There is a popular belief that the current corporate tax rate in the country is very high, and a reduction of the prevailing rate will stimulate investments which will have a wide range of positive effects on the economy. Those who support this theory are referring to the current rate which stands at 39.1% (the highest in the industrialized world). According to proponents, this income tax rate is putting U.S. corporations at a competitive disadvantage. But is there more to the story?
The truth is that US companies pay the highest corporate tax rate, but the vast majority of them have perfected the art of not paying it. According to official government records, the amount of corporate tax collected by the government has reduced significantly over the years. The ratio of the corporate tax paid to the total pre-tax profit earned by US corporations is the lowest in history.
A recent report by the CTJ (Citizens for Tax Justice) had some shocking revelations. The organization analyzed the federal income taxes and pre-tax profits of 288 Fortune 500 corporations that recorded huge profits for the five years leading up to the year 2012. The following are some of the findings:
While the federal U.S. corporate tax rate stands at 35%, the 288 most profitable companies only paid a tax rate of 19.4% over the 5-year period. What is more shocking is that General Electric, Boeing, Verizon and Priceline.com did not pay any federal income tax over this period. 93 corporations (33.3% of those analyzed) paid a tax rate of less than 10% over this 5-year period. Of the 288 Fortune 500 firms, 111 paid at most zero percent taxes for at least one year during this five year period. What’s interesting is that these corporations had a pre-tax profit of $227 billion, but paid no taxes. Whatever, the corporate tax rate in the country, the big companies usually find ways of paying less than they are required to.
2013 and 2014 taxes may be different for the wealthy due to several new tax implementations. The top tax rate may be steeper, and the actual percentage may depend upon what is included. People may be surprised by the changes, and this may be the ideal time to let TurboTax 2013guide you through efficient tax preparation.
Income inequality continues to be a major political issue, and things like extending jobless benefits, raising the minimum wage, and imposing changes that affect the top tax rate are central to addressing this issue. Some of the newer 2014 taxes include changes to capital gains taxes, and 2013 is the first year that taxpayers will feel the impact. New payroll and Medicare taxes may effect wealthy taxpayers starting in 2013, and the increases may net $87 billion over the next decade.
The 2013 tax filing season will begin on January 31st, but wealthier individuals may already see differences in their withholding going forward. The law is applied unevenly, and this may result in withholding for some people, exemptions in some cases, and larger tax refunds for others.
Changes involving capital gains, interest, dividends, and other types of investments may increase tax bills, but income after taxes may decrease by a small percentage. The percentage may not seem like much, but losing this share of income may seem substantial. You may not know where your income will place you in terms of the current tax rate changes, but TurboTax 2013 may give you the important answers you need.
Capital Gains and Losses are the result of holding capital assets for investment or for personal use. Capital Assets held for investment result in a capital gain or loss when sold compared to their basis, or what you purchase the asset for. Capital Assets held for personal use can only create a capital gain. All capital gains must be reported to the IRS.
Long term capital gains are better as their tax rate is generally lower than short term capital gains. The classification of a capital gain or loss is determined by a period of one year. Long term capital gains can be offset by long term capital losses, resulting in no taxes being owed or up to a $3,000 reduction in other outstanding tax. The tax rate for most long term capital gains is 15% with some exceptions resulting in 25% or 28%. See IRS Publication 17 for additional information.
Capital losses can be carried forward to future years to offset new capital gains when they exceed the $3,000 limit for the current year. The limit is only $1,500 if you file separately from your spouse. Finally, report capital gains and losses on Schedule D and then transfer the bottom line to your 1040 long form on line 13.