Taxation of Companies in Florida

For many it is a dream to live and hold a business in Florida. Before putting your plans into serious action, you should discuss the options of different types of companies and their benefits and disadvantages with an experienced tax accountant. Besides the fiscal view also the legal basics of every type of business have to be discussed. Therefore the tax accountant will consult an attorney. In Florida basically you can choose between the following types of companies: Sole-proprietorship, partnership, corporation, whereat a distinction is drawn between the C-Corporation and the S-Corporation and the Limited Liability Company.

Sole-Proprietorship:

For this company there is no separate tax return, but the revenues, expenses and the depreciation have to be reported to the Internal Revenue Service – IRS - with the business owners personal tax return. Important is, that not only the regular US income tax rate will be due (see following schedule), but additional die Self-Employed Tax (fee for retirement funds, Social Security and Medicare) of 15.3%. Florida is one of the few states, that don’t collect income tax from individuals.

Partnership:

This type of company prepares a tax return in fact, but doesn’t tax. Categorized by the types of income the profit/loss will be transfered to the partner’s personal tax returns. Than they pay the regular U.S. income tax and also the Self-Employment-Tax.

C-Corporation:

The C-Corporation prepares a state corporate income tax return and pays corporate income tax. Furthermore there is a 5.5% state corporate income tax in Florida for C-Corporations. Capital gains distributions to shareholders are dividends and are subject to and have to be included in the personal income tax return of that shareholder. According to that gains of a C-Corporation are subject to a double taxation. Self-Employment tax is not required.

S-Corporation:

The S-Corporation prepares a tax return for the IRS, but doesn’t pay corporate income tax. The profit and loss classified by category of income flow into the shareholders personal tax return (similar to the partnership). On the C-Corporation’s profit no tax is due for Self-Employment and corporate income.

Limited Liability Company:

A distinction is drawn between the single member LLC (owner) taxable as a Sole-proprietorship and the multiple-member LLC (multiple owners), taxable as a partnership. With a special application the LLC can choose to be taxable as a C-Corporation or an S-Corporation.

It is impossible to rate which type of company is the most profitable. To choose the type of company every individual case needs research and depends on a lot of factors as disclaimer, status of Visa, taxation of the owner in his native country etc. Everybody, who wants to form a company in the USA - even the U.S. resident, but especially the inexperienced foreigner – should get advice from an experienced tax accountant. The blindfold decision of forming a company could eventually cost you a lot of money.

The enlisted numbers don’t pose legal advice but is a basic orientation. There is no right to accuracy or completeness. Should you require detailed consulting service, we connect you to one of our experts.