In August 2022, President Joe Biden signed the Inflation Reduction Act of 2022 into law. One of its provisions was a minimum 15% corporate tax on the book income of large corporations. This is designed to ensure corporations pay taxes on profits even if they reduce their taxable income. Corporations report income in two different ways: book income and taxable income.
Corporations can reduce their taxable incomes using multiple methods. To arrive at a corporation’s taxable income, a corporation begins by adding up all sources of income to get the total income. Income sources may include sales revenue, investment income, rents, and capital gains. The corporation then deducts business expenses and other special deductions, such as salaries and wages, depreciation, advertising costs, and charitable contributions.
The most common ways that corporations reduce their taxable incomes is through net operating losses, accelerated depreciation, tax credits, and profit shifting.
