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Massachusetts Corporation
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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
- 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’ Business Tax Climate Ranks 33rd
Massachusetts ranks 33rd 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. Neighboring states ranked as follows: Rhode Island (46th), Connecticut (37th), New York (49th), New Hampshire (5th) and Vermont (45th).
Massachusetts’ State/Local Tax Burden Below National Average
Over the past 14 years, Massachusetts’ tax burden has stabilized around the national average. Estimated in 2004 at 9.4% of income, Massachusetts’ state/local tax burden percentage stands at 36th nationally, just below the national average of 10.0%.
Massachusetts’ Individual Income Tax System
Massachusetts’ personal income tax system consists of a flat tax of 5.3% on all personal income. That top rate ranks 12th lowest among states levying an individual income tax. Massachusetts’ 2002 individual income tax collections were $1,232 per person, which is 2nd highest nationally.
Massachusetts’ Corporate Income Tax System
Massachusetts’ corporate tax structure consists of a flat rate of 9.5% on all corporate income. Among states levying corporate income taxes, Massachusetts’ rate ranks 6th highest nationally. In 2001, corporate tax collections reached $190 per capita, ranked 6th highest nationally.
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