How Your Corporation Will Be Taxed
In this guide, you'll learn about the main Illinois taxes that apply to corporations, including sales, self-employment, corporate and federal taxes.
How your corporation is taxed will depend on whether it's an S Corp or a C Corp.
Illinois Taxes for Corporations
There are two types of IL state tax you must pay to the IL Department of Revenue: income and sales. Depending on how your business is set up, you may also need to pay use tax.
Important: All of these taxes apply whether you have a C Corp or an S Corp.
Illinois Income Tax
Illinois is one of 10 states that have a flat-rate income tax.
Anyone who takes earnings out of your Illinois corporation will need to pay Illinois state income tax, and will be taxed at Illinois' standard rates. Any employees will also need to pay state income tax. The current income tax for Illinois is 4.95 percent.
Illinois Sales and Use Tax
These tax types are similar enough that they're often categorized together. It's still important to understand the differences between them.
Federal Taxes for Corporations
Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Illinois corporation is paying the correct amount, and that you're paying the correct individual amount.
Federal Taxes for C Corps
All shareholders who earn wages or a salary from a C Corporation must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA) and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.
You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.
Federal Taxes for S Corps
The Internal Revenue Service may allow your business to be treated as an S Corporation for tax filing purposes, provided it meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary (on which you'll pay self-employment tax) and other income as distributions (which are not subject to self-employment tax).
Speak to your accountant or professional tax preparer for more information on reducing your tax burden through an S Corporation tax election.
We can file the paperwork with the IRS on your behalf.
A C Corporation may pay shareholders dividends as a share of the profits of the company. The value of dividends to which each shareholder is entitled depends on how many shares they own.
Dividends distributed to shareholders are taxed twice — first at the corporate level as profit (on the corporation’s Form 1120, the U.S. Corporation Income Tax Return) and again at the individual level as stock dividends (on the shareholder's Form 1040, the U.S. Individual Income Tax Return).
Incfile provides a complete Business Tax Filing service.
Employee and Employer Taxes
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.
Other Taxes and Duties
Depending on your industry, you may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.
Speak to your accountant about any other taxes or duties you may need to withhold or pay.
Learn more on the IRS website, and speak to your accountant for more information. Or use Incfile's Business Tax Filing service.
FAQs on Corporate Illinois Taxes
Yes. Illinois does have a sales tax, which may vary among cities and counties. Depending on how you run your business, you may also need to pay use tax. You can find more information above.
Yes. Illinois has a flat rate state income tax of 4.95 percent. You can find more information above.
Yes. Illinois does have a franchise tax, which all business entities must pay. You'll find more information above.
Yes. In most cases, you must pay estimated taxes to the federal government, whether you run a C Corp or an S Corp. You'll find more information above.