Alaska S Corporation
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- The independent life of the corporation makes possible its continuation, and the relatively undisturbed continued operation of the business regardless of incapacity or death of one or more stockholders.
- Fractional ownership shares are easily accommodated in the initial offering of stock.
- The purchase, sale, and gifting of stock make it possible to have changes in ownership without disturbing the corporation's ability to conduct business.
- The requirement that the corporation's finances and records be separate from the finances and records of stockholders reduces the risk of unrecognized equity liquidations.
- With only a few exceptions, under the Subchapter S election for taxation as a partnership the S corporation pays no income taxes and corporation income or loss is passed through direct to the stockholders.
- To the extent the corporate shield is maintained and other investments and savings of the stockholders are not at risk, the personal life of stockholders is simplified.
- The annual meetings of stockholders and consultations with legal counsel can provide stimulus for improved communication within the stockholder group (often a family group) and can provide more comprehensive guidance for management.
- Depending on the corporation's business record and the policies and practices of prospective lenders, access to credit and the ability to secure needed resources may be improved.
- Earnings representing "return on investment" (interest, rental payments, etc.) are not subject to self-employment tax as long as stockholder-employees receive adequate compensation for labor and management of the business.
Disadvantages of the S Corporation:
- Lenders may require personal guarantees from corporate officers as a condition of supplying credit, thus negating the limitation of liability.
- Conflicts or disagreements among the stockholders may immobilize decision making.
- Restrictions on the sale of stock and/or buy-back agreements included in the bylaws may prevent minority stockholders from being able to recover the value of their investment in the corporation.
- Through the processes of gifting and inheritance, stock ownership can become divided among many persons who are not active in the business and they may become a voting block that does not support needs and decisions believed desirable by managing stockholders.
- Over time, corporation paid benefits for stockholder-employees may become costly and exceed the ability of the business to pay.
- Employment benefits such as life insurance, health insurance, and housing costs are taxable income to stockholder employees with 2 percent or more stock ownership and to employees who are directly related to persons owning 2 percent or more of the corporation stock.
- If appreciated assets are owned by the corporation and the corporation is dissolved, significant income taxes on the appreciation amount will be generated.
Alaska’s 2011 Business Tax Climate Ranks 2nd
Alaska ranks 2nd in the 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. The ranks of the nearest states were as follows: Hawaii (22nd), Oregon (14th), Washington (11th) and California (49th).Alaska's Individual Income Tax System
Alaska levies no individual income taxes, joining six other states with the same policy: Wyoming, Washington, Nevada, Florida, Texas and South Dakota.Alaska's Corporate Income Tax System
Alaska's corporate tax structure consists of ten separate brackets with a top rate of 9.4% kicking in at an income level of $90,000 the 4th highest rate in the nation. In FY2008, Alaska's state-level corporate tax collections (excluding local taxes) reached $1,433 per capita, which ranked highest in the nation.Alaska Sales and Excise Taxes
Alaska levies no general sales or use tax on consumers, joining Delaware, New Hampshire, Montana and Oregon as the only other states with no sales tax. At the local level, Alaska collected $717 per person in general and selective sales taxes in 2007. Alaska's gasoline tax stands at 8.0 cents per gallon (lowest nationally). Alaska's cigarette tax stands at $2.00 per pack of twenty (10th highest nationally). The gasoline tax was adopted in 1946 and the cigarette tax in 1949.Alaska Property Taxes Comparatively High
Alaska is one of the 37 states that collect property taxes at both the state and local levels. As in most states, local governments collect far more. Alaska's localities collected $1,358.24 per capita in property taxes in fiscal year 2006, the latest year for which the Census Bureau has published state-by-state data. At the state level, Alaska collected $80.94 per capita during FY 2006, making its combined state/local property taxes $1,439.18 per capita, ranked 12th highest nationally.Federal Tax Burdens and Expenditures:
Alaska is a Beneficiary State Alaska taxpayers receive more federal funding per dollar of federal taxes paid compared to the average state. Per dollar of Federal tax collected in 2005, Alaska citizens received approximately $1.84 in the way of federal spending. This ranks the state 3rd highest nationally and represents a large rise from 1995 when Alaska received $1.21 per dollar of taxes in federal spending (then ranked at 17th highest nationally). The nearest states and the amount of federal spending they received per dollar of federal taxes paid were: Hawaii ($1.44), Oregon ($0.93), Washington ($0.88) and California ($0.78).S Corporation Definition-A corporation with 75 or fewer shareholders,that has elected and qualified for a special tax status with the Internal Revenue Service (IRS).
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