Most states tax at least some forms of business income. Many states have a franchise tax, which applies to most types of businesses. You can find out what kind of tax you owe by looking up your state’s tax code. For example, here is how it works in Alabama.
Businesses must pay different kinds of taxes on their profits. Companies selling products or providing services in Mississippi must pay corporate income tax and a franchise tax. In addition, a minimum franchise tax applies to all companies doing business in the state. The tax rate changes every fiscal year. Your company must pay the tax based on the amount of profit earned during the previous calendar year.
You should file a separate federal tax return and a separate state tax return even though they are filed together. This allows you to keep track of where each dollar goes. If you don’t do this, you could end up owing money twice.
A corporation is a legal structure used to limit liability for shareholders and directors. A corporation must file annual reports with the Secretary of State, pay corporate income tax, and can issue stock. All corporations are required to follow certain rules and regulations.
An S Corporation is a pass-through entity. This means that it does not pay any corporate income tax. Instead, the profits flow directly to the individual owners. In addition, S Corporations do not pay any state income tax. However, they are still subject to federal income tax.
Shareholders of an S Corporation may be subject to both state and Federal Income Tax on their shares of the Corporation’s income regardless of any dividends paid out.
By electing to have an LLC taxed as a corporation, you’ll be liable for both the State and Federal Corporate Income Taxes.
An LLC can be taxed like an S Corporation if elected to be so, but there are advantages to being taxed as an LLC. For example, an LLC can be taxed differently than an S Corp.
Note on Multistate Businesses and Nexus
If you run a multistate business, you must report income earned in every state where you conduct business. You must pay taxes in each state where you earn revenue. And you cannot deduct expenses incurred in one state against income earned in another. This article explains how the IRS calculates nexus.
Taxes in Mississippi
Income tax rates range from a flat 5% up to 12%, or even 14%. Property tax is based on a percentage of the assessed property value within each town, city, county or school district. This includes land, building, improvements and machinery. In some cases, taxes are calculated on a per capita basis. For example, the state of North Carolina charges residents $1.50 per month for every resident over the age of 18.
The federal government levies income taxes on individuals earning more than $200,000 ($250,000 for married couples). However, many exemptions, deductions, and credits are available to lower taxable income. Many states levy additional taxes on incomes above certain thresholds. Some states impose sales taxes on goods purchased out of state. Others charge local use taxes on purchases made locally.
Property tax varies widely across the country. Some towns and cities do not assess property tax, while others charge anywhere from 0% to several hundred dollars per thousand dollars of assessed value. Most municipalities base property tax assessments on the current market value of the real estate. If you sell your home, you must pay property tax regardless of whether you live there.
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Mississippi Income Taxes
Income taxes are generally lower than in most other states. Mississippi residents pay income taxes based on personal exemptions, deductions, and credits. For example, you can deduct $4,050 per person ($2,250 for each child under age 17). You must file Form 1040EZ, 1040A, 1040 or 1040NR. If filing jointly, both spouses must complete the form.
Sales tax rates are generally higher compared to other states. In Mississippi, sales tax applies to almost every transaction except those involving food. A small number of items like tobacco products and alcohol are exempt. There are four types of sales tax: general, use, occupation and privilege. General sales tax is collected at the same rate as state income tax and is applied to purchases regardless of where the item was purchased. Use tax is charged on certain tangible property used for commercial purposes. Occupation tax is levied on businesses and occupations such as doctors, lawyers, and dentists. The privilege tax is imposed on certain activities, including amusement rides, golf courses, and fishing boats.
Income Tax Brackets
Mississippi residents file taxes under the individual income tax system. This means that every person in the state is responsible for paying taxes based on his or her earnings.
The state does not levy a sales tax. Instead, it collects a 2% excise tax on retail purchases. However, there is no limit to how much you can deduct on your federal return.
Many states impose sales taxes. In some cases, there is a local option to charge extra sales taxes. However, Mississippi doesn’t impose any sales taxes on food, clothes, or other necessities. There is no state income or property tax either. As such, it’s one of the few places where you can live without paying any taxes whatsoever.
Mississippi Property Tax
Property taxes are one of the most significant expenses for Mississippians. In 2018, the average homeowner paid $2,818 in state and local taxes. But according to data compiled by Zillow, Mississippi ranks second in the nation for having the fewest property tax bills.
Home prices are lower in Mississippi compared to most other states, which helps make homeownership less expensive. Refinancing an existing mortgage could save you thousands of bucks over five years if you’re looking into buying a home.
Frequently Asked Questions
Franchise Tax: When does it start?
If you have more than one location in Mississippi, you will be subject to the franchise tax. The franchise tax is triggered when you earn more than $1 million annually from all locations combined.
What is the cost of doing business in MS?
The state of Mississippi charges a flat rate of 6 percent on all businesses, according to the Department of Revenue. The amount charged depends on the type of business and its location. For example, the state charges 7 percent for manufacturing companies, 8 percent for professional services firms, 9 percent for retail stores, and 10 percent for wholesale trade companies.
How do I file sales tax in Mississippi?
Mississippi is a “use” state. That means that the seller must collect and remit sales taxes on behalf of the buyer. The sales tax collected by the seller is based on the total purchase price, including shipping charges. If you are purchasing items from another person or business, they will be responsible for collecting and remitting the sales tax to the State of Mississippi.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.