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What You Should Know About State Taxes in Utah
Utah state taxes are complicated. If you’re a resident, you’ll pay some taxes no matter where you live. But there are ways to reduce those taxes and even take advantage of credits. Here’s what you need to know about Utah state taxes.
Overview of Utah Taxes
Utah residents pay sales tax on most items sold in state stores, including groceries, clothing, electronics, furniture, sporting goods and household appliances. In addition, there are several types of excise taxes levied on certain products. These include motor vehicle registration fees, fuel taxes, cigarette taxes, alcohol taxes, tobacco taxes, hotel occupancy taxes, and utility charges.
Taxes in Utah
Utah’s tax code is relatively simple, according to Tax Foundation data. Utah ranked 11th overall among the 50 states and Washington D.C. on the Tax Foundation’s 2017 state tax index. Utah’s tax code will change in January 2021.
The Tax Foundation’s analysis found that Utah’s individual income tax rates are low. For example, Utah residents pay no personal income taxes on their first $10,000 of taxable income, while residents earning over $100,000 per year pay 0% tax on incomes above $250,000. In addition, Utah exempts most property from taxation.
What form of tax on Utah business income would you be required to pay?
Every state imposes a different type or tax on business income. In some states, businesses are charged a flat rate on all types of business income. Other states impose a minimum amount of net worth before imposing taxes. Still others require corporations to pay a flat 5% on their net income. Corporations must pay an additional annual fee of $100, while sole proprietorships and partnerships pay no franchise tax.
Corporations pay a flat 5%, plus a partnership penalty, on their net income. Partnerships and LLCs must pay a flat 5% plus a partnership penalty on their net income. Sole proprietorships do not pay any franchise tax. Businesses are required to file separate returns for each type of entity they operate under.
A corporation is a legal entity separate from its owners. In most states, it is considered a person under the law. This makes it possible to sue a corporation just like you could sue a human being. If you win, you collect money damages against the corporation.
An S Corporation is a special form of corporation that allows people to pay less in taxes. Instead of paying regular corporate income tax, the owner of the S Corporation pays individual income tax on his/her earnings. However, there are some restrictions on how much he/she can deduct.
If you want to start a corporation, you must file articles of incorporation with the state government. You will need to provide information about the corporation’s name, the address where you do business, and the number of shares owned by each shareholder.
You become responsible for filing quarterly federal and state tax returns when you incorporate. Each return must include the total gross revenue earned during the quarter. The IRS requires that you keep track of your sales receipts so you don’t lose out on any deductions.
The IRS considers a corporation to be a “person.” Therefore, a corporation can make contributions to political campaigns. These contributions are called “electioneering communications” and are subject to limits.
In addition to making campaign donations, a corporation can donate money to charities. Donating to charity is a great way to reduce your taxable income. But remember, you cannot take a deduction for donating to a charitable organization.
You might think you can avoid paying taxes by starting a sole proprietorship. A sole proprietorship is similar to a partnership. Both types of businesses are taxed differently.
Utah Franchise Tax
The Utah franchise tax rate is 1% of the first $100,000 taxable income earned annually. A taxpayer may deduct only 50% of the franchise tax paid.
The Utah franchise tax rate is 0.05% on gross receipts over $100,000 annually. This means that if you have a business in Utah and make over $100,000 in annual revenue, you will owe 5 cents on each dollar over $100,000. This tax applies only to businesses located in Utah. You may face penalties and interest charges if you do not pay this tax. You should consult with a professional accountant before filing taxes.
Frequently Asked Questions
How is an LLC taxed in Utah?
Utah’s Limited Liability Company (LLC) tax structure was changed in 2015. Prior to the change, LLCs were taxed at the corporate level. Now, they are taxed as partnerships. In addition, the state imposes a franchise tax on each member of the LLC.
The LLC is treated differently than a corporation in several ways. First, the LLC does not pay income taxes. Instead, its profits flow directly to members who file individual returns. Second, the LLC is subject to a franchise tax based on its total net worth. Third, the LLC may deduct expenses associated with operating its business. Finally, the LLC is exempt from paying personal property taxes.
An LLC pays no income tax. Rather, its profits flow directly back to its owners. Each owner reports his share of the LLC’s profit on his own return. If the LLC distributes any money to its members, those distributions are reported on the individual returns.
Each member of the LLC is liable for a franchise tax equal to 1% of the company’s total net worth. Net worth includes cash, investments, real estate, vehicles, boats, airplanes, and anything else owned by the LLC. To calculate net worth, subtract liabilities from assets.
The LLC may deduct certain expenses related to running its business. These deductions include depreciation, interest paid on loans, legal fees, accounting fees, insurance premiums, advertising costs, travel expenses, supplies, utilities, rent, and office space.
Personal Property Taxes
An LLC cannot claim exemptions for personal property. However, the LLC may deduct the cost of purchasing equipment and tools if these items are held primarily for use in the LLC’s trade or business.
How are S corps taxed in Utah?
S corporations are treated differently than C-corporations. An S corporation does not pay income taxes; its profits pass through to shareholders, who then report their share of the company’s taxable income on their individual returns. Shareholders may deduct losses they have incurred from their own business activities before reporting any gain from the S corporation.
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.