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Arizona Corporation |
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:
Arizona Corporation
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
Arizona’s Business Tax Climate Ranks 19th
Arizona ranks 19th in the State Business Tax Climate Index, which measures the impact on business of five major elements of the tax system: the percentage of income taken by all taxes, the individual income tax rates, the corporate income taxes, the sales tax rate, and the complexity of the tax system. The ranks of neighboring states were as follows: California (38th), Nevada (6th), Utah (26th), Colorado (8th) and New Mexico (40th).Arizona’s State/Local Tax Burden at National Average
In 1991, Arizona had one of the nation’s highest tax burdens with taxes as a percentage of state income registering at 11.5%. Since then however, the tax burden has significantly fallen due to tax cuts and the fact that individual incomes have risen faster than state/local tax collections. Recently the decline has evened off. Estimated now at 10.0% of income, Arizona’s state/local tax burden percentage equals the national average.Arizona Individual Income Tax System
Arizona’s personal income tax system consists of five brackets and a top rate of 5.04% kicking in at an income level of $150,000. In 2003 Arizona's individual income tax collections were $377 per person, ranked 39th highest nationally.Since most small businesses are either S Corporations or partnerships or sole proprietorships, they pay their business taxes at the rates for individuals. This makes the tax environment for small businesses in Arizona competitive compared to other states.
Arizona’s Corporate Income Tax System
Arizona’s corporate tax structure consists of a flat tax of 6.97% on all corporate income. That rate ranks 32nd highest among states levying corporate income taxes. In 2003 corporate tax collections were $69.80 per capita, ranked 23th highest nationally.Arizona License Requirements
Certain types of businesses in the state are required to obtain a license and pay a fee. The following is partial list.- Agricultural marketing cooperatives
- Auto dealers
- Barbers
- Citrus brokers or merchants
- Contractors
- Cosmetologists
- Employment agencies
- Fruit and vegetable dealers and shippers
- Insurance personnel
- Real estate brokers and salespeople
- Securities dealers
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