Calculation of Federal Income Tax

Corporations pay tax on net taxable income. Shareholders pay an additional tax on the distributions (dividends).

A corporation may calculate its net income and pay tax on a calendar or fiscal year. If a fiscal year is elected, it can either end on the last day of any month during a year or be a 52/53 week year ending on the same day within 6 days from the end of any month.


Because there is a flexibility in choosing a fiscal year, consider shifting the year-end to January 31st. This comes in handy when your counterparts pay taxes based on the calendar year. Advanced payments to them could be made and deductions taken in the month of January right before the close of the year, while they still will have eleven months to go before their tax year ends to calculate net income.

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