Texas Corporation Advantages and Disadvantages

Should I form a Texas Corporation?

Starting a business involves risk, the risk that the business may either succeed or fail. The upside is hugh, financial freedom and time freedom; independence; unlimited earning potential. The downside is equally steep, potential financial ruin if you've staked everything you own on your business's ultimate success and thrown your career out the window. If you're running your business as a sole proprietorship or a general partnership, everything you own is on the line.

There's a lot that can go right and wrong in a business. A lot of it out of your control. But the extent of your personal financial liability for what goes wrong is one thing you can and should control.

The answer is to form an entity separate from yourself to run the business.

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:Texas 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

Texas' 2009 Business Tax Climate Ranks 7th

Texas ranks 7th nationally in the nations 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: New Mexico (26th), Oklahoma (18th), Arkansas (35th) and Louisiana (33rd).

Texas' State/Local Tax Burden Among Nation's Lowest

During the past three decades Texas' state and local tax burden has been consistently below the national average. Estimated at 8.4% of income, Texas's state and local tax burden percentage ranks 43rd highest nationally, well below the national average of 9.7%. Texans pay $3,580 per capita in state and local taxes.

Texas Levies a Gross Receipts Tax The state of Texas, in addition to collecting no personal income taxes, collects no corporate income taxes. However, Texas recently instituted a gross receipts tax called the Texas Margins tax. It went into effect January 1, 2007. Texas joins Washington, Delaware, Michigan and Ohio as the only states that levy an economy-wide gross receipts tax.

Texas Levies no Corporate Income Taxes

The state of Texas, in addition to collecting no personal income taxes, collects no corporate income taxes. However, Texas recently instituted a gross receipts tax called the Texas Margins tax. It went into effect January 1, 2007. Texas joins Washington, Delaware, Michigan and Ohio as the only states that levy an economy-wide gross receipts tax.

Home | Site-Map