Tennessee Corporation Advantages and Disadvantages
- Articles of Incorporation must be drafted and submitted to the Tennessee Secretary of
State, Corporations Division. Once articles of incorporation have been successfully filed, your Tennessee Corporation
has been formed and this begins its existence as a Tennessee corporate entity.
Should I Incoprorate in Tennessee ?
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 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
Federal Tax Forms for Regular or "C" Corporations
- 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.
- Form 1120 or 1120-A: Corporation Income Tax Return
- Form 1120-W Estimated Tax for Corporation
- Form 8109-B Deposit Coupon
- Form 4625 Depreciation
Tennessee's 2009 Business Tax Climate Ranks 17th
Tennessee ranks 17th 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: Kentucky (34th), Virginia (15th), North Carolina (39th), Georgia (27th), Alabama (21st), Mississippi (19th), Arkansas (35th) and Missouri (16th).
Tennessee's Individual Income Tax System
Tennessee's personal income tax system consists of a flat 6% rate on exclusively dividend and interest income. No other personal income is subject to state taxation. Tennessee's 2006 individual income tax collections were $32 per person, which ranked 43rd among states levying personal income taxes.
Tennessee's Corporate Income Tax System
Tennessee's corporate tax structure consists of a flat rate of 6.5% on all corporate income. Among states levying corporate income taxes, Tennessee's rate ranks 29th highest nationally. In 2007, state-level corporate tax collections (excluding local taxes) were $183 per capita, which ranked 18th highest nationally.
Tennessee Levies Sales Tax above National Median; Cigarette Tax among Lowest in Nation
Tennessee levies a 7% general sales or use tax on consumers, above the national median of 6%.State and local governments combined collected $1,360 per capita in general sales taxes in 2005, which ranks 5th highest nationally. Tennessee's gasoline tax stands at 21.4 cents per gallon, ranking 34th highest nationally. Tennessee's cigarette tax stands at 62 cents per pack of twenty and ranks 38th highest nationally. The sales tax was adopted in 1947, the gasoline tax in 1923 and the cigarette tax in 1925.
Corp vs C Corp
| Sub S Corporations
| LLCs Listed by State
| Business Deductions
| LLC vs S Corp
| CORP vs Part/Sole Part
| LLCs Taxes
| ICs and IRS
| Piercing the Corporate Veil
| How to Incorporate
| Delaware Corporation
| Corporations Listed by States
| S Corporations Listed by States
| Tennessee Corporation Advantages and Disadvantages