What does corporate taxation involve?

Corporate taxation specifically refers to the process of taxing a corporation's profits at the entity level. This means that before any profits are distributed to shareholders as dividends, the corporation itself is required to pay taxes on those earnings to the government. This tax is applied to the income that the corporation generates from its operations, and it is calculated based on the corporation's net income after expenses.

Understanding corporate taxation is crucial because it directly impacts how businesses plan their finances and how much they can distribute to shareholders. This tax structure is significant in distinguishing the taxation of corporations from that of pass-through entities, where income is taxed at the individual level rather than at the corporate level.