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New Jersey Corporation
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- 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
New Jersey’s Business Tax Climate Ranks 34th
New Jersey ranks 34th 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: New York (49th), Pennsylvania (22nd) and Delaware (18th).New Jersey’s State/Local Tax Burden Just Above National Average
In the early nineties, New Jersey had one of the nation’s highest tax burdens. Since peaking at 11.3% in 1994, however, the state has seen this figure fall. Still, estimated in 2004 at 10.1% of income, New Jersey’s state/local tax burden percentage is 15th highest nationally and just above the national average.
New Jersey’s Individual Income Tax System
New Jersey’s personal income tax system consists of six brackets and a top rate of 6.37% kicking in at an income level of $75,000. New Jersey’s top rate of 6.37% ranks it 22nd highest among states levying personal income taxes. New Jersey's 2002 individual income tax collections were $797 per person (ranked 14th highest nationally).
New Jersey’s Corporate Income Tax Rate and Collections among the Nation’s Highest
New Jersey’s corporate tax structure consists of a flat 9% on all corporate income. Corporations with entire net income of less than $100,000 pay 7.5%. This upper tax rate ranks the New Jersey 8th highest among states levying corporate income taxes. In 2001, corporate tax collections reached $153 per capita, ranking the state 9th nationally.
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