Business Entities and Considerations · Business entities

Corporations

Verification 2026 Verified
tax year · reviewed 2026-08-21 · Draft for I. Ohu review

The C corporation is the only business form that pays income tax in its own right, and since 2018 it has paid it at a single rate with no brackets. That makes the rate the least interesting thing about it. The live questions are the ones where a corporation’s rules diverge from an individual’s — the filing date, which sits where people do not expect it, and the charitable deduction, which from taxable years beginning after 2025 has acquired a floor beneath its ceiling that nothing in prior practice prepares a preparer for.

The rule

The tax. 21 percent of taxable income — a flat rate with no brackets (IRC § 11(b))^TY2026

The return. the 15th day of April following the close of a calendar year, or the 15th day of the fourth month following the close of a fiscal year — a C corporation falls under the general rule in IRC § 6072(a), not the third-month rule in § 6072(b) that governs partnerships and S corporations^TY2026 This is worth stating carefully, because the March date that attaches to partnerships and S corporations is the one people remember and it is not this one.

The charitable deduction, as it now stands. allowed only to the extent the aggregate exceeds 1 percent of taxable income and does not exceed 10 percent of taxable income — a floor as well as a ceiling, both applying to taxable years beginning after 31 December 2025 (IRC § 170(b)(2)(A) as amended by Pub. L. 119-21 § 70426(a), (d))^TY2026

What it replaced. a single ceiling of 10 percent of taxable income with no floor — the rule for taxable years beginning before 2026, and before that a temporary 25 percent ceiling for certain cash contributions in 2020 and 2021 that has long since lapsed^TY2026

And the carryover that follows. contributions disallowed by the 10 percent ceiling carry to the succeeding year and expire after the fifth taxable year following the year first taken into account, on a first-in first-out basis — with current-year contributions absorbed before carried amounts, and amounts disallowed by the 1 percent floor carried forward only from a year in which the 10 percent ceiling was also exceeded (IRC § 170(d)(2))^TY2026

The base erosion tax. 10.5 percent of modified taxable income, less regular tax liability adjusted as IRC § 59A(b)(1)(B) provides — Pub. L. 119-21 § 70331(a)(1) substituted 10.5 percent for 10 percent and § 70331(a)(2) struck the paragraph that would have raised the rate for taxable years beginning after 2025 (IRC § 59A(b)(1))^TY2026 It reaches only a corporation other than a regulated investment company, real estate investment trust or S corporation, with average annual gross receipts of at least $500,000,000 for the 3 taxable years ending with the preceding year, and a base erosion percentage of 3 percent or higher — 2 percent for a bank or securities dealer (IRC § 59A(e)(1))^TY2026

Capital gains and losses are not the individual rules. losses from sales or exchanges of capital assets are allowed only to the extent of gains from such sales or exchanges — a corporation has no equivalent of the individual allowance against ordinary income (IRC § 1211(a))^TY2026 And a net capital loss is carried back to each of the 3 preceding taxable years, so far as it does not increase or produce a net operating loss, and forward to each of the 5 succeeding years — treated as a short-term capital loss in each, and carried to the earliest available year first (IRC § 1212(a)(1))^TY2026 There is no preferential corporate rate: gains are taxed at the same flat rate as ordinary income (IRC § 11(b)).

Distributions change character on the way out. the portion of a distribution that is a dividend within IRC § 316 is included in the shareholder's gross income; the rest is applied against and reduces stock basis, and any excess over basis is treated as gain from a sale or exchange (IRC § 301(c))^TY2026 Rental income earned by a corporation reaches the shareholder as a dividend, not as rent.

Estimated tax. 25 percent of the required annual payment per installment, the required annual payment being the lesser of 100 percent of the tax shown on the current year's return or 100 percent of the tax shown on the preceding year's return — the prior-year branch unavailable where that year was not 12 months or the corporation filed no return showing a liability (IRC § 6655(d)(1))^TY2026 With no addition to tax where the tax shown on the return for the year, or the tax if no return is filed, is less than $500 (IRC § 6655(f))^TY2026 and a large corporation may not use the prior-year branch at all, except that it may use last year's tax for the first installment with the shortfall recaptured in the second (IRC § 6655(d)(2))^TY2026

At-risk amounts, for a closely held corporation. the money and adjusted basis of other property contributed to the activity, plus amounts borrowed to the extent the taxpayer is personally liable for repayment or has pledged property not used in the activity as security, to the extent of the net fair market value of that pledged interest (IRC § 465(b)(1), (2))^TY2026

And the foreign inclusion regime. A corporation that is a United States shareholder of a controlled foreign corporation has an inclusion under IRC § 951A — a United States person owning, directly, indirectly or by attribution under IRC § 958, 10 percent or more of the total combined voting power of all voting classes of stock of a foreign corporation, or 10 percent or more of the total value of its stock (IRC § 951(b))^TY2026 — with the deduction at 40 percent of the net CFC tested income amount included under IRC § 951A and of the related § 78 gross-up, plus 33.34 percent of foreign-derived deduction eligible income — allowed to a domestic corporation only, and subject to a taxable income limitation (IRC § 250(a))^TY2026 That regime is covered at 1.6.3.e, and its vocabulary changed in 2025.

Current figures

Item	Rule
Rate	21 percent of taxable income — a flat rate with no brackets (IRC § 11(b))^TY2026
Return due date	the 15th day of April following the close of a calendar year, or the 15th day of the fourth month following the close of a fiscal year — a C corporation falls under the general rule in IRC § 6072(a), not the third-month rule in § 6072(b) that governs partnerships and S corporations^TY2026
Charitable floor and ceiling	allowed only to the extent the aggregate exceeds 1 percent of taxable income and does not exceed 10 percent of taxable income — a floor as well as a ceiling, both applying to taxable years beginning after 31 December 2025 (IRC § 170(b)(2)(A) as amended by Pub. L. 119-21 § 70426(a), (d))^TY2026
Superseded charitable rule	a single ceiling of 10 percent of taxable income with no floor — the rule for taxable years beginning before 2026, and before that a temporary 25 percent ceiling for certain cash contributions in 2020 and 2021 that has long since lapsed^TY2026
Charitable carryover	contributions disallowed by the 10 percent ceiling carry to the succeeding year and expire after the fifth taxable year following the year first taken into account, on a first-in first-out basis — with current-year contributions absorbed before carried amounts, and amounts disallowed by the 1 percent floor carried forward only from a year in which the 10 percent ceiling was also exceeded (IRC § 170(d)(2))^TY2026
Base erosion tax rate	10.5 percent of modified taxable income, less regular tax liability adjusted as IRC § 59A(b)(1)(B) provides — Pub. L. 119-21 § 70331(a)(1) substituted 10.5 percent for 10 percent and § 70331(a)(2) struck the paragraph that would have raised the rate for taxable years beginning after 2025 (IRC § 59A(b)(1))^TY2026
Applicable taxpayer	a corporation other than a regulated investment company, real estate investment trust or S corporation, with average annual gross receipts of at least $500,000,000 for the 3 taxable years ending with the preceding year, and a base erosion percentage of 3 percent or higher — 2 percent for a bank or securities dealer (IRC § 59A(e)(1))^TY2026
United States shareholder	a United States person owning, directly, indirectly or by attribution under IRC § 958, 10 percent or more of the total combined voting power of all voting classes of stock of a foreign corporation, or 10 percent or more of the total value of its stock (IRC § 951(b))^TY2026
Section 250 deduction	40 percent of the net CFC tested income amount included under IRC § 951A and of the related § 78 gross-up, plus 33.34 percent of foreign-derived deduction eligible income — allowed to a domestic corporation only, and subject to a taxable income limitation (IRC § 250(a))^TY2026
Capital losses	losses from sales or exchanges of capital assets are allowed only to the extent of gains from such sales or exchanges — a corporation has no equivalent of the individual allowance against ordinary income (IRC § 1211(a))^TY2026
Capital loss carryback and carryforward	a net capital loss is carried back to each of the 3 preceding taxable years, so far as it does not increase or produce a net operating loss, and forward to each of the 5 succeeding years — treated as a short-term capital loss in each, and carried to the earliest available year first (IRC § 1212(a)(1))^TY2026
Character of distributions	the portion of a distribution that is a dividend within IRC § 316 is included in the shareholder's gross income; the rest is applied against and reduces stock basis, and any excess over basis is treated as gain from a sale or exchange (IRC § 301(c))^TY2026
Estimated tax installments	25 percent of the required annual payment per installment, the required annual payment being the lesser of 100 percent of the tax shown on the current year's return or 100 percent of the tax shown on the preceding year's return — the prior-year branch unavailable where that year was not 12 months or the corporation filed no return showing a liability (IRC § 6655(d)(1))^TY2026
Estimated tax de minimis	no addition to tax where the tax shown on the return for the year, or the tax if no return is filed, is less than $500 (IRC § 6655(f))^TY2026
Large corporations	a large corporation may not use the prior-year branch at all, except that it may use last year's tax for the first installment with the shortfall recaptured in the second (IRC § 6655(d)(2))^TY2026
Amounts at risk	the money and adjusted basis of other property contributed to the activity, plus amounts borrowed to the extent the taxpayer is personally liable for repayment or has pledged property not used in the activity as security, to the extent of the net fair market value of that pledged interest (IRC § 465(b)(1), (2))^TY2026
Partnership and S corporation date	the 15th day of March following the close of a calendar year, or the 15th day of the third month following the close of a fiscal year (IRC § 6072(b))^TY2026

How it works in practice

Fix the date first and separately. A calendar-year C corporation files in April. A calendar-year partnership or S corporation files in March. Practitioners who work mostly with pass-through entities carry the March date into corporate work, and the mistake is easy because it feels like the “business” date.

Then re-learn the charitable deduction. For taxable years beginning after 2025 a corporation gets no deduction at all for the first 1 percent of taxable income given away, and none above 10 percent. A corporation giving exactly 1 percent of its taxable income deducts nothing. That is a genuinely new result and it inverts the advice that small corporate gifts are freely deductible.

Follow the carryover rules carefully, because they distinguish the two limits. Amounts disallowed by the 10 percent ceiling carry forward five years. Amounts disallowed by the 1 percent floor carry forward only from a year in which the ceiling was also exceeded — so a corporation that gives less than 1 percent in a year loses the deduction outright rather than banking it.

Absorb current contributions first. In a carryforward year, contributions made in that year are taken into account before anything carried in, and the carryforward is first-in first-out with a five-year life.

Keep the base erosion tax in proportion. It applies only where the taxpayer meets the tests in IRC § 59A(e)(1): a corporation other than a regulated investment company, real estate investment trust or S corporation, with average annual gross receipts of at least $500,000,000 for the 3 taxable years ending with the preceding year, and a base erosion percentage of 3 percent or higher — 2 percent for a bank or securities dealer (IRC § 59A(e)(1))^TY2026 It is not a rule about ordinary corporate clients, and its rate changed in 2025.

And do not carry the individual rules across. The corporate charitable limitation is computed on taxable income, not on a contribution base; the corporate return date is not the individual date; and the corporate rate is flat where the individual rates are graduated.

The gift that deducted nothing

A corporation with taxable income of $2,000,000 gives $20,000 to a qualified charity in its 2026 year. It has made no other contributions.

Its deduction is nil. Under IRC § 170(b)(2)(A) as amended, contributions are allowed only to the extent the aggregate exceeds 1 percent of taxable income — here $20,000 — and $20,000 does not exceed $20,000. Nor is the amount carried forward: § 170(d)(2)(C) allows amounts disallowed by the floor to be carried forward only from a year in which the 10 percent ceiling was also exceeded, and this corporation is nowhere near it. Under the rule that applied through 2025 the whole $20,000 would have been deductible.

The ceiling, the floor and the carryover

A corporation with taxable income of $1,000,000 gives $150,000 in its 2026 year.

The floor removes the first $10,000 and the ceiling caps the deduction at $100,000, so it deducts $90,000. The excess over the ceiling — $50,000 — carries forward under § 170(d)(2)(A) and expires after the fifth taxable year following this one. Because the ceiling was exceeded, the amount disallowed by the floor is within the carryforward too. In the following year its own contributions are absorbed first, and only then the carried amount.

Two entities, two deadlines

A client owns a calendar-year C corporation and a calendar-year S corporation and asks the firm to file both together in March.

Only one is due in March. IRC § 6072(b) sets the fifteenth day of the third month for partnership and S corporation returns; the C corporation falls under the general rule in § 6072(a) and is due on the fifteenth day of the fourth month. Filing them together in March is fine; treating April as the deadline for both is not, and neither is assuming March for both.

The base erosion tax that did not apply

A domestic corporation with $80,000,000 of gross receipts makes substantial deductible payments to a foreign affiliate and its adviser raises the base erosion tax.

It is not an applicable taxpayer. Section 59A(e)(1)(B) requires average annual gross receipts of at least $500,000,000 for the three-taxable-year period ending with the preceding year, and this corporation is an order of magnitude below it. The base erosion percentage test never has to be reached. The tax is a large-corporation provision and appears in exam material far more often than in practice.

Using the March date for a C corporation. That is IRC § 6072(b) and applies to partnerships and S corporations. A C corporation is on the § 6072(a) April date.

Applying a 25 percent corporate charitable limit. That was a temporary rule for certain cash contributions in 2020 and 2021 and has long since lapsed.

Forgetting the new 1 percent floor. For taxable years beginning after 2025 the first 1 percent of taxable income given away produces no deduction at all.

Assuming everything disallowed carries forward. Amounts disallowed by the floor carry forward only from a year in which the 10 percent ceiling was also exceeded.

Absorbing carryforwards before current contributions. Section 170(d)(2)(A) takes current-year contributions into account first.

Using the individual contribution base. The corporate limitation is a percentage of taxable income.

Quoting the base erosion tax at 10 percent, or expecting it to rise to 12.5 percent. Pub. L. 119-21 substituted 10.5 percent and struck the paragraph that would have increased it after 2025.

Treating the flat rate as new. It has been flat since 2018; what changed in 2025 was the surrounding international regime, not § 11(b).

How this has changed

Two changes matter for a 2026 return and both come from Pub. L. 119-21.

The charitable limitation is the larger of the two for ordinary corporate clients. Section 70426(a) amended § 170(b)(2)(A) generally, replacing a single 10 percent ceiling with a rule that allows the deduction only to the extent contributions exceed 1 percent of taxable income and do not exceed 10 percent. Section 70426(b) rewrote the corporate carryover in § 170(d)(2) to match, adding the five-year first-in first-out rule in subparagraph (B) and the restriction in subparagraph (C) on carrying forward amounts disallowed by the floor. By § 70426(d) the amendments apply to taxable years beginning after 31 December 2025 — so 2026 is the first year they operate, and no prior-year working paper reflects them.

The second is the base erosion tax. Section 70331(a)(1) substituted 10.5 percent for 10 percent, and § 70331(a)(2) struck the paragraph that would have raised the rate for taxable years beginning after 2025. The scheduled step-up that commentary written before July 2025 describes will not happen.

The rate in § 11(b) has not moved since the 2017 Act made it flat, and Pub. L. 119-21 did not touch it. What did change around it is the international regime at 1.6.3.e, where the § 951A inclusion was renamed and its tangible-asset offset repealed.

Exam focus

Expect the filing date as a discrimination question. C corporation: fifteenth day of the fourth month. Partnership and S corporation: fifteenth day of the third month.

Expect a charitable contribution computation. For a 2026 year apply both limits — no deduction for the first 1 percent of taxable income, nothing above 10 percent — and then the carryover rules, which treat the two disallowances differently.

Know the flat 21 percent rate and that it has no brackets. For the base erosion tax, know that it is confined to corporations with very large gross receipts and that the rate is now 10.5 percent with no scheduled increase.

Check yourself

1. When is a calendar-year C corporation’s return due?

Answer: The 15th day of April following the close of the calendar year, under the general rule in IRC § 6072(a). The 15 March date in § 6072(b) applies to partnerships and S corporations.

2. A corporation with taxable income of $3,000,000 makes qualified charitable contributions of $25,000 in a taxable year beginning in 2026. What is its deduction?

Answer: Nil. Under IRC § 170(b)(2)(A) contributions are allowed only to the extent they exceed 1 percent of taxable income, which is $30,000 here, and $25,000 does not exceed it.

3. Same corporation, but the contributions are $400,000. What is deductible and what carries forward?

Answer: $300,000 is deductible — the 10 percent ceiling — and the excess carries forward under IRC § 170(d)(2)(A) for up to five taxable years on a first-in first-out basis. Because the ceiling was exceeded, the amount disallowed by the 1 percent floor is within the carryforward.

4. What is the corporate income tax rate?

Answer: 21 percent of taxable income, flat, under IRC § 11(b).

5. Which corporations can be applicable taxpayers for the base erosion tax?

Answer: A corporation other than a regulated investment company, real estate investment trust or S corporation, with average annual gross receipts of at least $500,000,000 for the 3 taxable years ending with the preceding year and a base erosion percentage of 3 percent or higher — 2 percent for a bank or securities dealer (IRC § 59A(e)(1)).

Change log

2026-08-21Initial draft. Sets out the flat IRC § 11(b) rate, the § 6072(a) April filing date that distinguishes a C corporation from the § 6072(b) entities, the § 170(b)(2)(A) charitable limitation as rewritten by Pub. L. 119-21 § 70426 to add a 1 percent floor beneath the 10 percent ceiling for taxable years beginning after 2025, the § 170(d)(2) carryover rules that follow from it, and the § 59A base erosion tax at the 10.5 percent rate substituted by Pub. L. 119-21 § 70331.