Key figures
Alabama accounting
2026, with sources
6.5%, after federal tax
Alabama taxes corporations at 6.5% of net income, and unusually it allows a deduction for federal income tax paid or accrued. The return is Form 20C. Alongside it, every corporation files the business privilege tax return, Form CPT, which also serves as its annual report.
Since tax years beginning on or after January 1, 2021, Alabama apportions income using a single sales factor, so a company’s Alabama office and payroll do not by themselves raise its Alabama income tax.
Conformity that follows Washington
Unlike most of its neighbors, Alabama’s corporate income tax picks up changes to the Internal Revenue Code automatically, unless the Legislature acts to decouple. The 2025 federal law’s bonus depreciation, interest limitation and domestic research expensing changes therefore flowed into Alabama, retroactive effective dates included. Alabama did decouple in 2021 from some international provisions, which do not matter to most startups.
Because Alabama had followed the 2022–2024 amortization rules, the Department of Revenue requires an add-back on the 2025 return, and on 2026 returns where the federal election is used, for amounts already deducted on the 2024 Alabama return. For a company that expenses its remaining unamortized research costs federally in 2025, the Alabama return mirrors that, less what Alabama already allowed.
An example
A Huntsville startup that turns a $1 million federal taxable profit and owes $210,000 of federal tax apportions 20% of its income to Alabama on its sales factor. Alabama starts from federal income, allows the federal tax deduction, and taxes the apportioned result at 6.5%. In the same year its business privilege tax is computed separately on Alabama net worth, at a rate set by its Alabama taxable income.
Deadlines
- 15th day of the 4th month after year end (calendar year: April 15)Corporation income tax returnForm 20C
- With the income tax returnCorporation business privilege tax return and annual reportForm CPT
The federal baseline
This page covers what Alabama adds. The federal rules underneath it apply here too.
Common questions
Does Alabama follow the federal R&D expensing rules?
Yes. Alabama corporate income tax conforms to federal changes automatically unless the Legislature decouples, and the 2025 federal changes to research expensing and bonus depreciation flowed through. The Department of Revenue’s September 2025 notice explains that for 2025, and for 2026 where the federal election is made, amounts already deducted on the 2024 Alabama return under the old amortization rules are added back so nothing is deducted twice.
What does Alabama’s deduction for federal income tax do?
Alabama lets a corporation deduct the federal income tax it paid or accrued in computing Alabama taxable income, so the effective rate on profitable companies is lower than the 6.5% headline. For a startup in losses it changes nothing, but in the tax provision it links the Alabama and federal current tax calculations.
Accounting next door
- FLFlorida accountingFlorida taxes C-corporations at 5.5% after a $50,000 exemption, apportions with double-weighted sales, and in 2026 decoupled again from federal bonus depreciation and domestic R&E expensing.
- GAGeorgia accountingGeorgia taxes C-corporations at a flat 4.99% for 2026, apportions on gross receipts alone, adds a net worth tax capped at $5,000, and decouples from bonus depreciation and Section 174A.
- MSMississippi accountingMississippi taxes corporate income at 0% on the first $5,000, 4% on the next $5,000 and 5% above, keeps a throwback rule, and is phasing out its franchise tax: $0.50 per $1,000 of capital in 2026, repealed from 2028.
- TNTennessee accountingTennessee taxes corporations through a 6.5% excise tax on earnings and a 0.25% franchise tax on net worth, apportioned on a single sales factor from 2025, with the property measure repealed in 2024.
Founder guides on this
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- US GAAPUS GAAP for early-stage startups, in plain EnglishAccrual accounting, revenue recognition (ASC 606), leases (ASC 842), stock compensation and capitalized software: what each means for a small company.
- The closeWhy startups should close their books every monthA monthly close turns a bank balance into numbers an investor, an auditor or a 409A firm will accept. What it is, and why it gets expensive to skip.
More of the Alabama guide
- ReceivablesReceivables and sales tax in AlabamaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in AlabamaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in AlabamaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in AlabamaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in AlabamaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.