Massachusetts Corporation
Advantages and Disadvantages

Massachusetts Corporation Advantages and Disadvantages

Should I Incoprorate in Massachusetts ?

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.

Massachusetts Corporation Advantages

  • 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

Massachusetts' 2011 Business Tax Climate Ranks 32nd

Massachusetts ranks 32nd in the Tax 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. Neighboring states ranked as follows: Rhode Island (42nd), Connecticut (47th), New York (50th), New Hampshire (7th) and Vermont (38th).

Massachusetts' Individual Income Tax System

Massachusetts' personal income tax system consists of a flat rate of 5.3% on most personal income. This rate ranks 31st highest among states that levy an income tax. Massachusetts' 2008 state-level individual income tax collections were $1,916 per person, which was the 2nd highest in the nation.

Massachusetts' Corporate Income Tax System

Massachusetts' corporate tax structure consists of a flat rate of 8.8% on all corporate income. Among states levying corporate income taxes, Massachusetts' rate ranks 9th highest nationally. In 2008, state-level corporate tax collections (excluding local taxes) were $334 per capita, which ranked 4th highest nationally.

Massachusetts Property Taxes among Nation's Highest

Massachusetts 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. Massachusetts' localities collected $1,683.66 per capita in property taxes in fiscal year 2006, which is the latest year that the Census Bureau published state-by-state data. Despite a well-known property tax limitation measure passed in the early 1980s, Proposition 2 1/2, Massachusetts' combined state/local property taxes are the 8th highest in the nation per capita. High levels of collections have been possible because the limitations in law are relatively easy to override locally. At the state level, Massachusetts collected a mere $0.01 per capita during FY 2006, making its combined state/local property taxes $1,683.67 per capita.

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