Montana Corporation - and Taxes
- Articles of Incorporation must be drafted and submitted to the Montana Secretary of
State, Corporations Division. Once articles of incorporation have been successfully filed, your Montana Corporation
been formed and this begins its existence as a Montana corporate entity.
Should I Incoprorate in Montana ?
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 of a Corporation
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
Montana's 2008 Business Tax Climate Ranks 6th
Montana ranks 6th in the nation'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. Neighboring states ranked as follows: Idaho (31st), Wyoming (1st), North Dakota (30th), and South Dakota (2nd).
Montana's Individual Income Tax System
Montana's personal income tax system consists of seven separate brackets with a top rate of 6.9%, kicking in at an income level of $14,899. That rate ranks Montana 15th highest, among states levying an individual income tax. Montana's 2005 individual income tax collections were $763 per person, which ranked 26th highest nationally.
Montana's Corporate Income Tax System
Montana's corporate tax structure consists of a flat rate of 6.75% on all corporate income. Among states levying corporate income taxes, Montana's rate ranks 28th highest nationally. In 2006, state-level corporate tax collections (excluding local taxes) were $162.68 per capita, which ranked the state 18th highest nationally.