Arizona Corporation Advantages and Disadvantages
Should I Incoprorate in Arizona ?
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
Arizona’s 2012 Business Tax Climate Ranks 27th
Arizona ranks 27th 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 Arizona
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, Arizona taxpayers work until April 2 (ranked 39th nationally) to pay their total tax bill, 10 days earlier than national Tax Freedom Day (April 12).
Arizona's State and Local Tax Burden Below National Average
Arizona's 2009 state and local tax burden of 8.7% of income is below the national average of 9.8%. Arizona's tax burden has decreased overall from 10.3% (18th nationally) in 1977 to 8.7% (38th nationally) in 2009. Arizona taxpayers pay $3,140 per capita in state and local taxes.
Arizona's Individual Income Tax System
Arizona's personal income tax system consists of five brackets and a top rate of 4.54% kicking in at an income level of $150,000. That top rate ranks 39th highest among states levying an individual income tax. In 2008, Arizona's state-level individual income tax collections were $530 per person, which ranked 39th highest nationally.
Arizona's Corporate Income Tax System
Arizona's corporate tax structure consists of a flat rate of 6.968% on all corporate income. That rate ranks 26th highest among states levying corporate income taxes. In 2008 state-level corporate tax collections (excluding local taxes) were $122 per capita, which ranked 33rd highest nationally.
Arizona Sales and Excise Taxes
Arizona levies a 5.6% general sales or use tax on consumers, which is slightly below the national median of 5.85%. 2007 combined state and local general and selective sales tax collections were $1,800 per person, which ranked 7th highest nationally. Arizona's gasoline tax stands at 19.0 cents per gallon (ranked 41rst highest nationally), while its cigarette tax stands at $2.00 per pack of twenty (10th highest nationally). The sales tax was adopted in 1933, the gasoline tax in 1921 and the cigarette tax in 1935.
50-state table of sales, cigarette, gas, beer, wine, and spirits tax rates.
50-State Table of State and Local General and Selective Sales Tax Collections Per Capita
Arizona Property Taxes Comparatively Modest
Arizona 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. Arizona's localities collected $846.45 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, Arizona collected $65.27 per capita during FY 2006, making its combined state/local property tax collections $911.73 per capita, ranked 35th nationally.
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