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Michigan 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
Michigan’s Business Tax Climate Ranks 36th
Michigan ranks 36th 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: Indiana (12th), Ohio (29th), and Wisconsin (41st).
Michigan’s State/Local Tax Burden Just Above National Average
Estimated in 2004 at 10.2% of income, Michigan’s state/local tax burden percentage is ranked 13th nationally, just above the national average of 10.0%.
Michigan’s Individual Income Tax System
Michigan’s personal income tax system consists of a simple 4.1% tax of individual’s federal AGI (with some modifications). That flat tax rate is 4th lowest among states levying income taxes. Michigan’s 2002 individual income tax collections were $610 per person (ranked 27th highest nationally).
Michigan’s Corporate Income Tax Rate Lowest in the Nation
Michigan’s corporate tax structure consists of two brackets in which all income under $45,000 is not taxed, while all income over that number is taxed at a 1.9% rate. Among states levying corporate income taxes, no state had a corporate rate lower than Michigan’s. Yet, no state has a business tax structure quite as complex as Michigan’s, either. Despite this, in 2001, corporate tax collections reached $210 per capita, ranking it 4th highest nationally.
Advantages and Disadvantages of a Corporation