The Rhode Island franchise tax is one of the most complicated taxes in the United States. You need to know many things about it, including what businesses must pay, how to calculate the number of authorized shares of stock, and whether you qualify for certain exemptions.
Businesses are subject to an annual franchise tax based on the value of their authorized shares of stock. This includes companies incorporated under Rhode Island law, foreign corporations doing business in Rhode Island, and domestic partnerships.
There is no limit to the number of authorized shares a corporation can hold, however, there is a cap on the total value of those shares. For example, a single shareholder cannot hold more than 10% of the outstanding shares of a corporation. The maximum value of authorized shares is $100 million.
In addition, each authorized share represents a fractional ownership interest in the corporation. Each share is equal to 0.01% of the corporation’s capital stock. If a corporation holds 50,000 authorized shares, then each share is worth $50,000.
A corporation is required to report the number of authorized shares held on Form RI-2. Any change in the number of authorized shares requires a new filing with the Division of Corporation Finance.
The amount owed for the franchise tax is determined by multiplying the number of authorized shares times the applicable rate. The rate varies based on the type of business entity.
Corporations are taxed at a rate of 7% of net taxable income. Net taxable income is defined as gross receipts minus allowable deductions.
Overview of Rhode Island Taxes
Rhode Island has an income tax, a sales tax, and property taxes. Income taxes are progressive, which means that people who make less pay lower rates. Sales taxes are flat; everyone pays the same percentage. Property taxes are very expensive.
Financial planners can help you plan your financial life, whether you want to save up for retirement or buy a house. They can also help manage your investments.
Your Income Taxes Breakdown
Federal income tax is calculated by adding up every dollar earned and dividing it by 12. Then, you add up every deduction and divide it by 4. This gives you your adjusted gross income. You take your AGI and multiply it by 0.7% to determine how much you owe Uncle Sam. If you earn less than $10,000 per year, you don’t pay taxes.
FICA is Social Security and medicare contributions paid to the federal goverment. Your employer pays half of each paycheck into the system, while you contribute 7.65%. This is split evenly among the three major social security programs – Old Age Insurance, Survivors Insurance, and Disability Insurance.
State income tax is based on your state of residence. Each state sets its own rates, and some states even offer additional income tax breaks.
Local income tax is based on what county you reside in. Some counties charge local income tax, others do not. In addition, some cities charge local income tax, while others do not.
How Income Taxes Are Calculated
Income tax is one of those things that most people don’t think about too often. But it’s something that affects us all every single day. For example, let’s say you make $100,000 per year. You’ll end Taxes up paying around $10,000 in federal income tax because you’re considered a “single filer.” If you file jointly with your spouse, however, Income you’ll end up paying around half that amount.
Your AGI is calculated by taking all of your earnings and subtracting any expenses. Then, you take away exemptions, deductions and adjustments to get your taxable income. This number determines how much you pay each year in federal taxes.
Rhode Island has an income tax, a sales tax, and property taxes.
Property taxes are very high in RI compared to most states. There are many ways to reduce your state and local taxes, including filing online and using a local accountant.
Create your LLC Corporation with just 3 easy steps
Rhode Island Income Taxes
Income tax is progressive, meaning that the wealthier you are,the higher percentage of your earnings goes toward paying taxes. In Rhode Island, income tax rates range from 3% to 5.99%. There is no state sales tax. Property taxes vary by municipality. For example, Providence imposes property taxes ranging from $1.00 per $100 of assessed value up to $2.50 per $100 of assessed valuation.
Income Tax Brackets
The United States uses a progressive income tax system. This means that people earning less money pay lower rates than those making more.
The US has four major tax brackets: 10%, 15%, 24%, and 28%. Here’s what you need to know about each one.
This is the lowest tax bracket. People in this category earn up to $9,525 annually ($18,150 for married filing joint). They pay no taxes on the first $9,525 of income. For every dollar over $9,525, the person pays 10% of that amount.
People in this bracket make between $9,526 and $38,700 annually. They pay no taxes on their first $9,525 and 10% on the next $1,225. If they earn more than $38,700, they pay 15% on the next $8,850 and 20% on anything above.
Frequently Asked Questions
Who must file a Rhode Island partnership tax return
The following individuals must file a Rhode Island Partnership Tax Return (RIT):
A partner who files a federal income tax return
An individual who files a Rhode Island Individual Income Tax Return
An individual who files both a Rhode Island Individual Income and a Federal Income Tax Return
An entity that files a Rhode Island Business Income Tax Return
An estate or trust that files a Rhode Island Estate Tax Return
An individual or entity that files a Rhode island Inheritance Tax Return
An individual that files a Rhode Island Gift and Transfer Tax Return
An individual filing a Rhode Island Nonresident Alien Income Tax Return
An organization that files a Rhode Island Charitable Organization Registration Statement
An individual who files an amended Rhode Island Individual Income Tax return
An individual who elects to have his/her state taxes withheld at the federal level
An individual who files for bankruptcy protection under Chapter 11 of Title 11 of the United States Code
Who will pay the franchise tax
1. The Franchise Tax Board (FTB) collects taxes on behalf of local governments. In addition to collecting property taxes, the FTB collects sales taxes, use taxes, business privilege taxes, and gross receipts taxes.
2. Local government agencies have their own taxing authority. These agencies may levy property taxes, income taxes, sales taxes, etc.
3. Businesses are responsible for paying any state taxes they owe. If a business does not collect enough money from its customers to cover the amount owed, then the company must pay the difference out-of-pocket.
4. A business’s net profits are taxed at different rates depending upon whether the business is incorporated or unincorporated. Corporations are taxed at a higher rate than sole proprietorships.
Is franchise tax different than income tax?
Franchise Tax is a type of business tax levied at the state level. Franchise taxes are collected by states based on the number of businesses operating within their borders. States have the option of taxing either the company’s profits (income tax) or its sales (sales tax). In some cases, both types of taxes may apply.
Income tax is generally applied to companies’ net profit. Sales tax applies to gross receipts. A company’s total taxable revenue is the sum of its income tax plus its sales tax liability.
The difference between these two forms of taxation is that while income tax is imposed upon a corporation’s shareholders, sales tax is not. Instead, corporations pay sales tax directly to the state government.
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.