Corporate income tax depends on the net taxable income. Where taxable income surpasses $335,000, all taxable income is subject to tax at 34 percent or 35 percent. Tax rate enforced below the federal level fluctuate from 1 percent to over 16 percent. Regulated Investment Companies (RICs) are the domestic corporations which during the taxable year are listed under the Investment Companies Act of 1940, as amended as a unit investment trust or a management company or to be treated as a business development company under such Act. This paper will focus on tax treatment of regulated investment companies and the corporate income tax and how do they differ from one another. Historical Content During the past decade, the corporate income tax has been the centre of attention of much debate and criticism in the United States (U.S.). It may be due to the low level of business investment in US and it has been also condemned as a primarily illogical and unfair tax because corporations are taxed as independent entities, in spite of the tax brackets of individual shareholders. The recent tax acts have lessened the corporate tax burden by substituting the system of several asset depreciation classes with three capital recovery classes. Business structures can be written off over fifteen years, other equipment over five years and light equipment over three years (Auerbach, 451-458). The corporate tax is the 3rd major source of federal revenue after the payroll taxes and the individual income tax. Regulated Investment Companies are listed under the Investment Companies Act of 1940. RICs escape corporate taxes due to the reason that they make profit from investments through shareholders and they do not have any real operations. Thus, they pass profits to shareholders and circumvent double taxation. They meet definite standards and therefore do not have to pay federal income taxes on interest, distribution of dividends and realized capital gains. Economic Incidence of the Policy Shareholders must be the citizens or residents of United States. The tax is imposed on the profits of the resident corporations of U.S. at graduated rates ranging from 15-35%. Corporate shareholders pay individual income tax on capital gains and on dividends from sale of their shares. The corporate tax rules which are faced by the U.S. based corporations on their profits from United States business activities, of which the foreign multinational companies are the owner, are same as that of U.S. owned companies. An increase in the corporate income tax increases the cost of capital in the corporate sectors due to the burden of tax-wedge. The return to corporate capital falls as capital flows from corporate sector to non corporate sector. For high capital intensive industries, corporate income tax increases the prices of goods and services and for low capital intensive industries, prices falls with the tax. U.S. capital bears the small incidence of the corporate income tax and labour bears more or less 100% of the incidence of the corporate income tax. The domestic corporations who bear the economic incidence and therefore opt to be taxed as a RIC are as follows: RIC must be a corporation which should be registered under the Investment Companies Act as a unit investment trust or as a management company. It may also be a common trust. Each series fund which is ascertained by a RIC will be treated as a separate corporation and they should separately meet all the qualification
Tax Treatment Introduction Corporate income tax in United States is imposed at the federal level on the income of entities treated for tax purposes as corporations. Federal tax rate which is imposed on corporate taxable income differ from 15 percent to 35 percent…
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