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On the Divergence between Corporate Tax Expense and Tax Paid

On the Divergence between Corporate Tax Expense and Tax Paid 2025

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The document analyzes the divergence between GAAP-based and cash-based measures of corporate tax burdens, revealing that significant differences reported in prior research are largely due to sample selection biases, such as excluding loss firms and using asymmetric winsorization. The study finds that when these factors are controlled for, average tax divergence is minimal, although substantial cross-sectional variation exists. It also explores how public scrutiny and governance strength influence tax divergence, concluding that firms facing greater scrutiny tend to report higher GAAP tax expenses relative to cash taxes paid. The findings have implications for investors and researchers regarding the interpretation of corporate tax burdens.

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Do corporations pay taxes after expenses?

Corporate taxes are collected by the government as a source of income. Taxes are based on taxable income after expenses have been deducted. As of January 2025, the corporate tax rate in the United States is a flat rate of 21%. Before the Trump tax reforms of 2017, the corporate tax rate was 35%.

Why are corporate profits taxed twice?

Double taxation often occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just like individuals. Double taxation is often an unintended consequence of tax legislation.

What is the tax expense divided by taxable income?

While a marginal tax rate tells a taxpayer the highest tax bracket they are in, an effective tax rate tells a taxpayer what their average tax rate is. An effective tax rate is the quotient of a taxpayers total tax expense divided by their taxable income.

Is taxable income before or after expenses?

While most income must be reported on your taxes, the IRS allows you to make certain adjustments and exclusions to reduce your taxable income. Your final taxable income and tax bill are determined only after all allowed deductions and other adjustments are subtracted from your gross income.

How does a corporation pay taxes?

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

Do you get money back on taxes for business expenses?

Yes, there are tax benefits that come with being a small business owner. Any business expenses qualify as a tax deduction for small business owners. If your business is a pass-through entity then profits and losses are applied to your personal income taxes.

What is the difference between tax expense and tax paid?

The tax expense is the amount of money that a business or other entity owes in taxes based on standard business accounting rules. This charge is reported on the income statement. The tax payable is the actual amount owed in taxes based on the rules of the tax code.

On the Divergence between Corporate Tax Expense and Tax Paid 2025

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Do corporations pay taxes after expenses?

Why are corporate profits taxed twice?

What is the tax expense divided by taxable income?

Is taxable income before or after expenses?

How does a corporation pay taxes?

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Do you get money back on taxes for business expenses?

What is the difference between tax expense and tax paid?

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On the Divergence between Corporate Tax Expense and Tax Paid 2025

Here's how it works

How to rapidly redact On the Divergence between Corporate Tax Expense and Tax Paid online

Complete this form in 5 minutes or less

Got questions?

Do corporations pay taxes after expenses?

Why are corporate profits taxed twice?

What is the tax expense divided by taxable income?

Is taxable income before or after expenses?

How does a corporation pay taxes?

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People also ask

Do you get money back on taxes for business expenses?

What is the difference between tax expense and tax paid?

Related links

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