Alabama Corporation Advantages and Disadvantages
Alabama is one of the hottest places in the nation to start and grow a business, according to a new national report.Entrepreneur.com ranked Alabama number five overall on its state list in the 2005 Hot States for Entrepreneurs. The state was
Should I Incoprorate in Alabama ?
A corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.
Advantages and Disadvantages:
Advantages of a Corporation
- Shareholders have limited liability for the corporation's debts or judgments against the corporations.
- Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)
- Corporations can raise additional funds through the sale of stock.
- A corporation may deduct the cost of benefits it provides to officers and employees.
- Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.
- A corporation pays 15% federal income tax on taxable income up to $50,000; 25% tax on income from $50,001 - $75,000; 34% tax on income from $75,001 - $100,000; 39% tax on income from $100,001 - $335,000; and 34% tax on income over $335,000.
- A sole proprietor who filed a federal income tax return under the status of married, filing jointly, would pay 15% federal income tax on taxable income up to $35,800; 28% tax on income from $35,801 to 86,500; and 31% tax on income over $86,501.
Disadvantages of a Corporation
- The process of incorporation requires more time and money than other forms of organization.
- Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
- Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible form business income, thus this income can be taxed twice.
Federal Tax Forms for Regular or "C" Corporations
- Form 1120 or 1120-A: Corporation Income Tax Return
- Form 1120-W Estimated Tax for Corporation
- Form 8109-B Deposit Coupon
- Form 4625 Depreciation
Alabama's 2012 Business Tax Climate Ranks 20th
Alabama ranks 20th in the Tax Foundation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property.
Tax Freedom Day Arrives on April 2 in Alabama
Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2011, Alabama taxpayers work until April 2 (ranked 43rd highest nationally), celebrating tax freedom a ten days before national Tax Freedom Day (April 12).
Alabama's State and Local Tax Burden Below National Average
During the past three decades, Alabama's state and local tax burden has been consistently below average. Alabama's 2009 tax burden of 8.5% of income is below the national average of 9.8%. Alabama's tax burden has decreased overall from 9.0% (39th nationally) in 1977 to 8.5% (40th nationally) in 2009. Alabama taxpayers pay $2,967 per capita in state and local taxes.
2012 State Business Tax Climate Index, Ninth Edition
Alabama's Individual Income Tax SystemAlabama's personal income tax system consists of three separate brackets with a top rate of 5% kicking in at an income level of $3,000. That top rate ranks 31st highest among states levying an individual income tax. Alabama's 2009 state-level individual income tax collections were $567 per person, which ranked 37th highest nationally.
Alabama's Corporate Income Tax System
Alabama's corporate tax structure consists of a flat rate of 6.5% on all corporate income. Among states levying corporate income taxes, Alabama's rate ranks 29th highest nationally. In FY2009, state-level corporate tax collections (excluding local taxes) were $105 per capita, which ranked 26th highest among states that tax corporate income.
Alabama Sales and Excise Taxes
Alabama levies a 4% general sales or use tax on consumers, which is below the national median of 5.85%, but localities are permitted to levy their own high sales taxes. 2007 combined state and local general and selective sales tax collections were $1,391 per person, which ranked 23rd highest nationally. Alabama's gasoline tax stands at $0.209 per gallon (35th nationally), while its cigarette tax stands at $0.425 per pack of twenty (45th nationally). Additionally, municipalities in Alabama have the authority to levy their own "local option" taxes on gasoline. The sales tax was adopted in 1936, the gasoline tax in 1923 and the cigarette tax in 1935.
Alabama Property Tax Collections Lowest in Nation
Alabama collects very little in property taxes compared to most other states. Alabama's localities collected $367.47 per capita in fiscal year 2006, the latest year for which the Census Bureau has released state-by-state data. The state government collected $54.63 per capita in property taxes, meaning Alabama's combined state and local property tax collection figure was $422.10 per capita in FY 2006-the lowest property tax collections in the nation.
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