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Rhode Island 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
Rhode Island’s Business Tax Climate Ranks 46th
Rhode Island ranks 46th 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: Connecticut (37th) and Massachusetts (33rd).
Rhode Island’s State/Local Tax Burden among the Highest in the Nation
For most of the past 14 years, Rhode Island has consistently had one of the nation’s higher tax burdens. Estimated now at 11.1% of income, Rhode Island’s state/local tax burden percentage stands at 5th highest nationwide, above the national average of 10.0%.
Rhode Island’s Individual Income Tax System
Rhode Island’s personal income tax system consists of a simple tax of 25% on the taxpayer’s federal liability. Rhode Island’s 2002 individual income tax collections were $771 per person (16th highest nationally).
Since most small businesses are either S Corporations or partnerships or sole proprietorships, they pay their business taxes at the rates for individuals. This makes the tax environment for small businesses in Rhode Island competitive compared to other states.
Rhode Island’s Corporate Income Tax System
Rhode Island’s corporate tax structure consists of a flat rate of 9% on all corporate income. Among states levying corporate income taxes, Rhode Island’s rate ranks 8th highest nationally. In 2001, corporate tax collections reached $74 per capita.
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