Different forms of business entities are subject to different tax regulations. If you choose to set up your business as a C corporation, your business will have to pay corporate taxes. With other business entities, such as an LLC, partnership, or even S Corporation, the business is not taxed on a corporate level, but rather the shareholders are taxed for the income they receive from the profits of the business.
As a C Corporation in Minnesota, the corporation will experience double taxation. This means that the business is taxed on corporate level, and when dividends are distributed to shareholders, the shareholders’ income is also taxed. When a corporation is taxed at the corporate level, its income (net profits) is taxed under Minnesota’s corporate franchise tax as well as the federal corporate income tax.
The Minnesota corporate franchise tax is a set rate. The income of each corporation is taxed at 9.8% currently. In addition to the 9.8% taxed at the state level, the corporation’s income will be taxed at the federal level. This tax rate varies depending on the income of the corporation. In general, the rate ranges from 15% to 35%. For example, a corporation that has an annual income of $50,000 or less may only have to pay tax at a rate of 15%. However, a corporation that brings in an annual income of $75,000-$100,000 may be taxed at a rate of 35%. What tax rate the corporation is subjected to is going to depend on the income of the corporation.
It may be easy for many people to decide they want to avoid the double taxation of the C Corporation and start business as an LLC or S Corporation; however, if a business is a public company, meaning its stock is traded on the public market, then the corporation must be a C Corporation and must pay corporate income taxes.
If you are starting up a business and want to start up a C Corporation, or are currently involved with a C Corporation, it is important to understand your tax obligations. There are several forms that a corporation must fill out with both the state and the federal government when filing corporate income tax returns. It may be in your best interest to contact a tax attorney to help you figure out exactly what needs to be done, and to make sure that you are aware of the corporate tax responsibilities of a C Corporation.