In Wyoming, LLCs are considered partnerships and therefore pay double tax on all profits. Sole proprietorships and Corporations are taxed based on net earnings earned within the state. If you are considering incorporating your business, it is important to know how different types of entities impact taxes.
Types of Business Entities
A sole proprietorship is a business operated by a single individual. If you run a restaurant, it might be a sole proprietorship. You operate the business yourself, pay taxes, and keep profits.
A general partnership is similar to a sole proprietorship except that it allows several people to work together to make decisions about the business. Instead of being solely responsible for making those decisions, however, everyone agrees to share responsibility. This way, no matter who makes poor decisions, none of the partners will bear the full burden.
An S Corporation is another variation of a general partnership. Like a general partnership, an S Corp allows multiple individuals to participate in decision-making. Unlike a general partnership, though, an S Corp does not require equal participation by all partners. Rather, it lets each owner contribute his or her percentage of the capital required to start the business.
The difference between a general partnership and an S Corp is significant because, unlike a general partnership, an LLC cannot be taxed like a corporation. Instead, it is treated like a partnership, meaning that profits and losses pass through to partners based on their ownership interests.
Limited Liability Company
An LLC differs from both a general partnership and an corporation in that it provides limited liability protection for owners, managers, and employees. As long as the LLC meets certain requirements, such as having a board of directors, officers, and registered agents, the owners, managers, and workers are protected from personal lawsuits.
Limited Liability Companies
Limited liability companies (LLCs) are a type of legal entity that allows businesses to protect themselves against potential personal liabilities. They are commonly used for real estate development, construction and manufacturing projects. An LLC offers many advantages over corporations and partnerships.
C-corporations
are most common type of corporation in the United States
The vast majority of American corporations are C-corporations, according to data compiled by Bloomberg. This includes public companies listed on stock exchanges such as Nasdaq Inc., New York Stock Exchange Group Inc. and NYSE Euronext. About 90% of Fortune 500 companies are C-corporation, according to research firm S&P Global Market Intelligence.
Companies that choose to incorporate as C-corporations do so because it allows shareholders to receive income without paying taxes on those earnings until the money is distributed. A shareholder pays corporate income tax on dividend payments when he receives them.
Shareholders pay capital gains tax on stock sales, whether they sell shares directly or through brokers. They don’t pay tax on dividends received unless they cash out.
For example, Apple Inc. paid $38 billion in dividends in 2018, according to regulatory filings. But the company didn’t owe federal income tax on those payments since it had no taxable income. If Apple had been incorporated as a regular corporation, it would have owed $13.8 billion in federal income tax on the same amount of dividends.
A partnership is a legal entity formed by individuals to conduct business together. This type of business structure is often used by small businesses to avoid paying unnecessary fees, such as incorporation costs. In addition, it allows partners to take advantage of certain tax advantages, such as lower personal income tax rates and no payroll deductions. However, there are some downsides to forming a partnership. For example, you must follow specific rules regarding capital contributions, ownership percentages, and profits and losses. Therefore, it is important to understand what a partnership entails before deciding whether one is best suited for your needs.
Corporations
A corporation is a legal entity that exists separately from its owners. Corporations are taxed differently than individuals because corporations do not pay personal income taxes; rather, they pay taxes based on how much profit they make. In addition, corporations are required to pay certain fees and report certain financial information to the government.
The term “C Corporation” refers to a specific form of corporation used in the United States. This type of corporation is taxed like a partnership, meaning that it is treated as a separate taxable entity. However, unlike partnerships, C corporations are subject to double taxation. They must pay both individual income tax and corporate income tax on their profits.
An S Corporation is a different type of corporation. Unlike C corporations, S corporations are not taxed on their profits. Instead, shareholders of an S corporation are taxed on dividends distributed to them. Dividends include payments such as interest, salaries, and bonuses paid to shareholders. These distributions are called pass-thru items, since they flow directly through to the shareholder’s personal tax return. Shareholders of S corporations cannot claim deductions for losses incurred by the corporation.
In addition, S corporations are not required to pay franchise or excise taxes. Instead, they are subject to payroll taxes and social security taxes.
S-corporations
A corporation is a legal entity that exists separate from its owners. A corporation is usually formed under state law to limit liability for individuals associated with the corporation. In return, corporations receive limited liability protection, allowing them to raise capital without personal risk.
Corporations are taxed differently than people. While people are required to file income tax returns every year, corporations do not have to file unless they make over $50,000 per year. Instead, corporations must file annual information returns (Forms 1065). These forms detail how much money the corporation earned, what it spent, and where those funds went.
The IRS uses Form 990 to determine whether a corporation qualifies for certain benefits such as being exempt from paying corporate income taxes. If a corporation doesn’t qualify for one of these benefits, it might still be eligible for another benefit called “pass-thru taxation.” This allows a corporation to pass along most of its operating losses to its shareholders.
Pass-thru taxation is possible because S-corps don’t pay federal income taxes. Instead, they distribute their earnings to shareholders who report them as taxable income on their individual tax returns, just like regular businesses.
How Wyoming Taxes Businesses
In most states, businesses pay personal income tax and corporate income tax. But some states don’t charge either type of tax. Wyoming doesn’t charge any state income taxes or corporate income tax. Instead, it charges a sales tax on goods sold within the state. And it imposes a franchise tax on corporations doing business in Wyoming.
The federal government also levies a corporate income tax. States are allowed to levy a separate tax on corporations doing business within their borders. This is known as a “franchise tax.”
Wyoming does not collect a personal income tax because it does not have a state income tax. However, residents do pay a property tax.
Wyoming’s Annual License Fee
In Wyoming, there is no corporate income tax, so businesses are taxed based on their profits rather than their revenues. This means that companies must file yearly reports detailing what they did within the state. These reports include information about the number of employees, payroll, sales and purchases.
The amount of the annual license fees depends on how much money a company makes in the state, according to the Wyoming Division of Revenue. Companies with less than $25,000 in instate assets don’t have to pay anything.
Companies with over $1 million in instate assets pay $5 per employee. Those with over $10 million in instate assets must pay $15 per employee. There is a sliding scale for those with between $1 million and $10 million in instated assets. Companies making over $100 million in Wyoming pay $30 per employee.
Frequently Asked Questions
How to lower your personal income taxes?
The IRS says it doesn’t care about your business plan, or whether you are a small business owner or a huge corporation. If you make over $100k per year, and you live in one of the 50 states, there is a very simple solution to lower your personal income tax.
You just need to form a holding company. This is done without having to file a single document with the government. Once formed, the holding company pays zero federal income tax. Instead, the shareholders of the holding company pay individual income tax based on how much money they earn.
There is no need to actually set up a “C Corp”. Any limited liability company can elect to be treated as a C Corporation. By forming a holding company, you avoid double taxation.
How Do I Calculate My Late Filing Fees?
A late filing fee is calculated by multiplying the number of whole or partial calendar years that have passed since the original transaction occurred times the applicable annual fee.
For example, a corporation that began doing business in Texas in July 2004 and registered in 2009 would pay $250 per year ($1250 total). If it failed to file a return for one full year, it would owe $500 in late filing fees.
If the same corporation had failed to file a return every year since it began doing business in Texas, it would owe $3,750 in late filing fees. But that doesn’t mean you’ll owe thousands of dollars in late fees; there are ways to avoid paying those hefty penalties.
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.
