Vermont Corporation Advantages and Disadvantages

Vermont Corporation
Advantages and Disadvantages

Vermont Corporation

Vermont Corporation and Taxes

Vermont Corporation - Articles of Incorporation must be drafted and submitted to the Vermont Secretary of State, Corporations Division. Once articles of incorporation have been successfully filed, your Vermont Corporation has been formed and this begins its existence as a Vermont corporate entity.

Should I form a Vermont 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 Vermont 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

Vermont�s Business Tax Climate Ranks 45th

Vermont ranks 45th 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. Ranks of neighboring states are as follows: New Hampshire (5th), New York (49th) and Massachusetts (33rd).

Vermont�s State/Local Tax Burden is Slightly Above the National Average

In 1990 Vermont had a significantly above-average tax burden (11.6% compared to a national average of 10.3%). Since then, individual incomes have risen faster than state/local tax collections. Yet, estimated now at 10.4% of income, Vermont�s state/local taxes are still higher than the national average of 10.0%.

Vermont has one of the Most Expensive Individual Income Tax Systems

Vermont�s income tax system is composed of five brackets with a top rate of 9.5% kicking in at $307,050. For families earning between $67,700 and $307,050, only Montana, Iowa, Oregon, and California have higher rates, while for incomes over $307,050, only Montana�s rate is higher. Vermont's 2002 individual income tax collections were $662 per person (22nd highest nationally).

Vermont�s Corporate Income Tax Rate is Among the Highest in the Nation

Structured with four brackets and a top rate of 9.75%, Vermont�s corporate tax structure is among the priciest in the nation. Only Iowa and Pennsylvania have a higher top corporate tax rate than Vermont. Despite the high rates, Vermont�s corporate income tax collections are among the lowest in the nation. In 2002, corporate tax collections in Vermont totaled $72.47 per capita.