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What is Franchise Tax? Is it Enough to Pay Franchise Tax Alone?

What is Franchise Tax? Is it Enough to Pay Franchise Tax Alone?

04.12.2020 16:38 by Clemta

In this text, you will find answers to following questions; what is franchise tax, who has to pay it and how to calculate franchise tax.


What is Franchise Tax?

Franchise tax is a levy paid by certain enterprises that want to do business in some states. Some entities are exempt from franchise taxes including fraternal organizations, nonprofits, and some limited liability corporations.


Do I Have to Pay Franchise Tax?

Considering you have successfully incorporated your business; fresh tax liabilities will be introduced to you as you have a new taxpayer status. The franchise tax is a flat rated and obligatory tax, regardless of your company type. Along with the state of Delaware, numerous states have been imposing income tax on companies. Following your incorporation processes, your company will be liable for a flat rated franchise tax, annually.


How to Calculate Franchise Tax?

Franchise tax is a flat-rate tax, the actual amount of taxation value will vary depending on the calculation method you choose. It consists of the number of authorized shares or the assumed par value capital values. Having considered you have successfully paid the franchise tax on-time, additional tax liabilities might be imposed, depending on your operational and legal structure. Having an operationally active C-Corp will require you to pay the federal corporate tax, which is currently a rate of %21. Additionally, the distribution of dividends to the shareholders will cost them to pay the income tax regarding the dividend payments, which will also result in double-taxation.


Franchise Tax for LLC’s and C-Corp’s

Having an operationally active LLC will ensure you flexibilities on taxation. You may choose to file taxes of your operationally active LLC, either on a disregarded entity basis or on the above-mentioned C-Corp taxation. A significant advantage of the disregarded entity taxation is, being able to file the taxes of your company with your income taxes before the IRS. This taxation method will surpass the double-taxation. Including a full-service taxation consultancy regarding your complex tax issues, Clemta offers a complete consultancy in terms of your incorporation and post-incorporation procedures. You may check our website and add required services to your cart by one-click, as your first step of the incorporation phase. Clemta will handle the rest for you.