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Tennessee Corporation |
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.
- 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 Business Tax Climate Ranks 18th
Tennessee ranks 18th 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: Kentucky (39th), Virginia (13th), North Carolina (40th), Georgia (19th), Alabama (20th), Mississippi (17th), Arkansas (35th) and Missouri (17th).
Tennessee’s State/Local Tax Burden in the Nation’s Bottom Five
Over the past 14 years, Tennessee’s tax burden has consistently been among the lowest in the nation. Estimated now at 8.5% of income, Tennessee’s state/local tax burden percentage stands at 47th nationally, well below the national average of 10.0%.
Tennessee’s Individual Income Tax System
Tennessee’s personal income tax system consists of a flat 6% rate on only dividend and interest income. All other personal income is not subject to state taxation. Tennessee’s 2002 individual income tax collections were $25 per person (43rd highest nationally).
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 10th lowest. In 2001, corporate tax collections reached $117 per capita.
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