Franchise Tax South Carolina: What Is It & How To File

 

 

In South Carolina, the taxable incomes of corporations are based on where the company operates, rather than where it resides. This is known as “nexus.” When a company sells goods or provides services in another state, it must report those sales or services as income in that state. For example, a company that owns a manufacturing plant in North Carolina earns $1 million in profits there. If the same company also runs a retail store in South Carolina, it must report $1 million in profits from its South Carolina operation even though it did not earn the profit there.

Transfer pricing is the practice of setting differently priced products or services within the same industry. An airline might charge one price to passengers flying domestically and another price to passengers traveling internationally. Companies often use transfer pricing to avoid paying tax in multiple states.

The Internal Revenue Service defines a nexus as the place where a company does most business. A company is considered to do the majority of its business in a particular state if more than 50% of its total revenue is generated there.

Affiliate nexus is based on how closely related two companies are. One company is deemed to be affiliated with another if it controls, dominates, or substantially participates in the management of the affairs of the other.

Click through is a type of affiliate nexus. Two companies are considered affiliates if they both derive substantial economic benefit from each other. For example, a retailer may sell advertising space on its website to a publisher. The publisher pays the retailer a commission for every ad view. The publisher is considered to be an affiliate because it derives substantial economic benefits from the retailer.

What are you going to owe on your South Carolina company income?

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The state of South Carolina charges different taxes based on whether you are a sole proprietorship, a partnership, a corporation, or another legal form. In addition, most states impose a franchise tax on businesses that do business within their borders. So what does it mean to file a South Carolina business return? Here’s a quick guide to help you figure out what you owe.

Corporation Income Tax

South Carolina imposes a 4.5% corporation income tax on the taxable portion of net income. Net income is defined as total income minus certain deductions. Deductions include depreciation, depletion, amortization, interest expense, and certain other expenses. If you operate as a subchapter S corporation, you must report your federal adjusted gross income on Form 1040 Schedule K-1, Shareholder’s Share of Income, Credits, Deductions, etc., rather than on Form 1040 Schedule C. You can deduct losses from the S corporation on Form 8832, Deduction for Certain Business Bad Debts.

Partnership Income Tax

If you are a partner in a partnership, you are taxed on each partner’s distributive share of partnership income. A partnership is treated like a corporation for purposes of determining distributive shares. Distributive shares are calculated by dividing the partnership’s net income by the number of partners. For example, suppose a partnership had $100,000 in net income and three partners. Each partner would receive one third ($33,333), or 33.3%.

 

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Sole Proprietorship Income Tax

A sole proprietorship pays no income tax. Instead, the owner reports his or her self-employment earnings on Schedule SE, Self-Employment Tax. This schedule requires the taxpayer to report wages paid to himself or herself, tips received, and Social Security and Medicare taxes withheld. There is no separate reporting requirement for capital gains.

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Overview of South Carolina Taxes

South Carolina has a progressive income tax system. This means that people earning less money pay a smaller percentage of their earnings in state taxes than those making more. In addition to the progressive income tax, there is a sales tax, a corporate income tax, and a property tax.

Property taxes are lower than most other states. There are no personal exemptions and the maximum assessed. Your value is $10 million for single-family homes and $25 million for multi-family dwellings. If you How live in a mobile home park, however, you must Taxes pay a special assessment. Gasoline prices are among the South lowest in the United States. The average price per gallon of regular Income gas in South Carolina is $2.42; South compared to the national average of $2.66.

Income Taxes Breakdown

Federal Tax income tax is calculated based upon taxable income. Your federal income tax liability depends on your total income, deductions, exemptions, credits, and standard deduction.

Social Security and Medicare taxes are collected on wages up to $127,200 ($160,400 married filing jointly). These taxes are deducted from your paycheck and sent to the government. You pay 12.4% of your earnings over $127,200.

State income tax is due on most types of income, including interest, dividends, rents, royalties, capital gains, alimony, child support, unemployment compensation, and self-employment income. Some states exempt some or all of these items from state taxation.

Local income tax is due on some types of income, such as interest, dividends, rents and royalties, capital gains, and alimony. Some localities exempt some or all of those items from local taxation.

How Income Taxes Are Calculated

Adjusted gross income is the total amount of money you earned during the tax year minus certain deductions. For example, let’s say you worked full-time throughout the entire year and earned $40,000. You paid taxes on the first $30,000 of your earnings and then took out $10,000 in expenses. So, your taxable income is $20,000.

Taxable income is the same thing, except it considers how much you actually owe in taxes. If you owed $2,500 in taxes, your taxable income would be $22,500.

Your filing status determines your federal income tax brackets. Married Filing Jointly filers pay taxes on their combined incomes. Single filers file separately, and each person files his/her own return.

If you file jointly, you fall under one of four different tax brackets: 10%, 15%, 25% or 28%. These numbers represent the percentage of your AGI that will be taxed at each bracket.

For example, if you earn $50,000 and your AGI is $100,000, you would pay $5,000 in taxes at the 10% bracket ($5,000 x.1 $500), $7,500 at the 15% bracket ($7,500 x.15 $1,125), $12,500 at the 25% bracket ($12,500 x.25 $3,125), and $16,250 at the 28% bracket ($16,250 x.28 $4,562).

Taxes in South Carolina

Income tax is the most common type of taxation in South Carolina. In 2016, it accounted for about $1.3 billion in revenue. Property tax is the second largest source of income taxes in the state. This year, property taxes are expected to bring in about $1.4 billion. Sales tax is the least commonly used form of taxation. Last year, sales tax brought in about $845 million.

South Carolina Income Taxes

South Carolina has one of the lowest top personal income taxes in the United States. This makes it a great place to live, work, start a business, retire, or just visit.

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Property Tax

In addition to having one of the lowest top individual income tax rates, South Carolina also has some of the lowest property taxes in the nation. In fact, South Carolina has no state sales tax.

Sales Tax

The average sales tax rate in South Carolina is 5.5%, which is less than half the national average of 10.3%.

Income Tax Brackets

For most Americans, it’s April 15th. But for many people, filing their taxes is also the deadline. And while you might think that you don’t know enough about taxes to do it yourself, there are plenty of online tools that can help you out. For example, TurboTax makes it easy to calculate how much money you owe Uncle Sam. You just enter your information, and it does the rest. If you want to make sure you pay less, you can use our calculator to see what deductions you qualify for.

The IRS says the standard deduction is $12,200 per person ($24,400 for married couples). So even though it doesn’t sound like much, it could save you hundreds of dollars. In addition, the IRS allows taxpayers to deduct state and local property taxes, mortgage interest payments, charitable contributions, student loan interest, medical expenses, and retirement savings. However, you can subtract those items from your gross income if you itemize. This includes home office expenses, unreimbursed employee business travel expenses, moving costs, and deductible medical expenses.

If you’re self-employed, you can take advantage of the Self-Employment Credit, which reduces your tax bill by 2% of your net earnings up to $100,000. Check out the IRS’s Net Earnings Calculator to determine whether you qualify.

You can also use the IRS’s Free File program to find free forms and fillable PDFs. These include W-2 forms, 1040EZ, 1040A, and 1040 Schedule SE.

And finally, if you’ve got questions about your refund, you can use the IRS’ Refund Anticipation Loan tool. Just input your personal info and select your expected refund amount. Then, you’ll receive a decision within minutes.

South Carolina State Tax Guide

Property Taxes

The average property tax bill in South Carolina is $1,939 per year. This includes real estate taxes, school district taxes, county taxes, and special assessments.

Sales Taxes

The sales tax rate in South Carolina is 4%.

Income Taxes

The state income tax rate is 3.75%, plus local rates.

Tax Base

The IRS defines “tax base” as taxable income less certain adjustments, such as exemptions, deductions, exclusions, etc. This is the amount you owe Uncle Sam each month.

If you want to know how much tax you’ll pay next year, it helps to understand what factors affect your tax liability. Here are some of the most important ones:

Adjusted gross income – Your AGI is the total money you earned during the year. You include income from wages, interest, dividends, alimony, pensions, royalties, partnerships, trusts, inheritances, capital gains, and many other sources.

Itemized deductions – These are expenses that reduce your taxable income. Some examples include mortgage interest, property taxes, charitable contributions, medical expenses, state and local sales taxes, student loan interest, and unreimbursed employee business expenses.

Standard deduction – If you file a single return, you can deduct $6,300 ($12,600 if filing jointly). Married couples filing separately can take the standard deduction.

Personal exemption – For 2018, married taxpayers filing jointly can claim an additional personal exemption of $4,050, and individuals claiming head of the household status can claim an additional personal exclusion of $3,400.

Federal income tax brackets – Each bracket represents a different percentage of your adjusted gross income. See our table above for a list of federal tax rates.

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Frequently Asked Questions

How do franchise taxes work in South Carolina

The Franchise Tax Act (FTTA) was enacted in 1976 to provide states with franchise tax liability uniformity. The FTTA defines a “franchise” as any business enterprise that is operated under a trade name, trademark, service mark, logotype, advertising or marketing plan, or similar distinctive feature or combination of features. A franchisee may be either a corporation or a partnership.

A corporation operating under a franchise agreement is subject to franchise tax if its gross receipts exceed $500,000 per year. Gross receipts means the total amount charged or received for goods sold or services rendered. If the corporation does not have sufficient assets to pay the franchise tax, then the corporation shall make quarterly payments until the franchise tax is paid.

If the corporation has insufficient funds to pay the franchise tax due, the corporation shall file a statement showing the nature of the franchise and the amount of the franchise tax due. The statement shall be filed with the Department of Revenue.

In addition, the corporation shall pay interest at the rate of 1% per month on the unpaid portion of the franchise tax. Interest accrues each calendar quarter beginning January 1st and ending March 31st.

A corporation that operates under a franchise agreement is liable for franchise tax only once per year. However, a corporation that changes its status from being a corporation to being a partnership or sole proprietorship is subject to franchise tax on the first day of the fiscal year following the change in status.

A partnership is considered a separate entity for purposes of franchise tax liability. Therefore, a partnership is subject to franchise tax based upon the income earned by the partnership.

An individual who owns 100 percent of the stock of a corporation is personally responsible for the franchise tax owed by the corporation. An individual who owns less than 100 percent of the stock in a corporation is not personally liable for the franchise tax owed.

What is not taxed in South Carolina

1. Alcohol

Alcohol is not taxed in SC. You may have heard about the tax-free days at state fairs, but alcohol is actually exempt from sales taxes. However, if you’re buying alcohol for personal use, you’ll still need to pay the 6% sales tax.

2. Tobacco Products

Tobacco products are also exempt from sales tax. If you buy cigarettes, cigars, chewing tobacco, etc., they won’t be subject to any sales tax.

3. Food & Beverage

Food and beverages are exempt from sales tax. Grocery stores don’t charge sales tax on food items, including meat, dairy, produce, bread, cereal, snacks, candy, soda, juice, milk, eggs, coffee, tea, beer, wine, liquor, and more. Restaurants don’t charge sales tax either, unless otherwise noted.

4. Clothing

Clothing isn’t subject to sales tax in SC. That includes shoes, shirts, pants, jackets, sweaters, socks, underwear, swimwear, and more.

5. Medical Supplies

Medical supplies aren’t subject to sales tax either. Doctors’ offices, hospitals, pharmacies, and medical supply companies don’t charge sales tax.

6. Pet Care Items

Pet care items are exempt from sales tax in SC. Veterinary clinics, groomers, pet stores, kennels, boarding facilities, and more don’t charge sales tax for these services.

7. Home Improvement Materials

Home improvement materials are exempt from sales tax as well. Hardware stores, lumber yards, home centers, building material suppliers, paint stores, flooring stores, and more don’t impose sales tax on their goods.

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