South Carolina Corporation Advantages and Disadvantages
South Carolina Corporation and Taxes
South Carolina Corporation:
Should I form a South Carolina Corporation?
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 South Carolina 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
South Carolina's 2008 Business Tax Climate Ranks 26th
South Carolina ranks 26th in the Tax Foundation'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: Georgia (20th) and North Carolina (40th).
South Carolina's Individual Income Tax System
South Carolina's personal income tax system features six income brackets with a top rate of 7% kicking in at a relatively low income level of $13,150. Among states levying personal income taxes, South Carolina's top rate of 7.0% is 12th highest nationally. In 2005, state individual income tax collections were $634 per person, which ranked 34th highest nationally.
South Carolina's Corporate Income Tax System
South Carolina's corporate tax structure consists of a flat tax of 5.0% on all corporate income. Among states levying corporate income taxes, South Carolina's tax ranks the state 41st highest nationally. In 2006, state-level corporate tax collections (excluding local taxes) were $68.67 per capita and ranked 44th highest nationally.