Arkansas Corporation Advantages and Disadvantages
Should I Incoprorate in Arkansas ?
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
Arkansas' 2012 Business Tax Climate Ranks 31st
Arkansas ranks 31st 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.
Arkansas' State and Local Tax Burden Above National Average
Arkansas' 2009 state and local tax burden of 9.9% of income is just above the national average of 9.8%. Arkansas' tax burden has increased overall from 8.3% (46th nationally) in 1977 to 9.9% (14th nationally) in 2009. Arkansas taxpayers pay $3,281 per capita in state and local taxes.
Tax Freedom Day Arrives on April 3 in Arkansas
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, Arkansas taxpayers work until April 3 to pay their total tax bill (ranked 35th nationally), 8 days before national Tax Freedom Day (April 12). The Tax Freedom Days of neighboring states were: Texas, April 7 (ranked 25th nationally); Oklahoma, April 2 (ranked 41st nationally); Missouri, April 4 (ranked 33rd nationally); Tennessee, March 27 (ranked 49th nationally); Mississippi, March 26 (ranked 50th nationally); and Louisiana, March 30 (ranked 47th nationally). Full study of Tax Freedom Day, nationwide and in each state
Arkansas' Corporate Income Tax System
Arkansas' corporate tax structure consists of six separate brackets with a top rate of 6.5% kicking in at an income level of $100,000. Among states levying corporate income taxes, Arkansas' top rate ranks 29th highest nationally. In 2008, state-level corporate tax collections (excluding local taxes) reached $120 per capita, which ranked 35th highest nationally.
The Facts on Arkansas' Tax Climate
Tax Freedom Day Arrives on April 3 in Arkansas Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2010, Arkansas taxpayers work until April 3 to pay their total tax bill (ranked 38th nationally), 5 days before national Tax Freedom Day (April 9). The Tax Freedom Days of neighboring states were: Texas, April 5 (ranked 32nd nationally); Oklahoma, April 6 (ranked 30th nationally); Missouri, April 4 (ranked 36th nationally); Tennessee, April 1 (ranked 44th nationally); Mississippi, March 28 (ranked 48th nationally); and Louisiana, March 26 (ranked 49th nationally).
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