How to Incorporate in Idaho vs. How to Start a Idaho LLC

LLCs and corporations both provide liability protection for their owners. This means that each business entity acts as a shield between the human element and the physical business, so that if a lawsuit was to be filed, or a bankruptcy was to occur, the owners of the business are not likely to see their personal assets (cars, homes, savings, investments, etc…) to be used to pay debts. But beyond that, most people don’t entirely understand the differences between LLCs and corporations. Active Filings is about to drop some knowledge. Let’s take a quick look at some of the structural differences between corporations and LLCs. People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.

• Ease of maintenance
  Corporations have to keep minutes, hold meetings, and record votes and resolutions. LLCs require none of these things, saving you time and the overall hassle. There are fewer forms required for registering, and there are generally fewer start-up costs. The knock against LLCs is that they aren’t perpetual. Unless your LLC’s operating agreement specifies exactly what happens in the event a member dies, resigns or declares bankruptcy, most states require that LLCs dissolve when these events occur. Corporations, however, can exist as their own entity, regardless of what happens to the individuals involved in the business.
• Desired tax structure
  By default an LLC is a pass-through tax entity, meaning that the income is not taxed at the company level. The income or loss as shown on this return is ‘passed through’ the business entity to the individual members, and is reported on their individual tax returns. Less paperwork. More straightforward. A corporation is a separately taxable entity, and pays tax on the income prior to any dividend distributions to shareholders. If and when corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders.
• Investors
  When it comes to investing in a company, most investors feel most comfortable investing their hard earned money into corporations. The biggest reason investors prefer corporations is their favorable taxation rules. Unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed, which means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.

Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Idaho. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $25.)

A final thought on LLCs and corporations and the idea of prestige. While the local shop down the street is a fine upstanding company, their LLC just doesn’t have the prestige of a Nike, Inc or a Walmart, Inc. When you hear the word corporation, many people think of big multi-national companies with tons of resources at their disposal. While the LLC is perfect for the small to medium-sized business, the words Limited Liability Company (LLC) doesn’t carry the same weight as the corporation. While LLCs first came into being in the late 1970s, the corporation is the oldest recognized business entity in the US, and thus they carry with them an aura of prestige.

While we’ve already broken down the differences between an LLC and a corporation, we’re going to dig a bit deeper into the pros and cons of forming an Idaho LLC or corporation. Take a look below to see what makes Idaho LLCs and corporations unique:

• Flat Corporate Tax
  Idaho’s flat corporate flat tax of 7.6% is good for a number of reasons, simplicity being one. The current U.S. tax system is so complicated that it costs taxpayers a lot just to implement it. Another benefit to a flat tax is improved fairness. An investigation by “Money” magazine showed that when 45 different tax professionals prepared the same return, it resulted in 45 different tax calculations. Even a Treasury Department study found that callers to the IRS toll-free help lines got the wrong answers 25% of the time.
• No Cost Annual Report
  Most states charge an arm and a leg with regards to filing their annual and biennial reports. Idaho charges nothing, though if you file it by paper it will cost $20. Still super affordable.
• Relatively Low Taxation
  With a graduated income tax ranging from 1.12% to 6.92%, Idaho ranks 8^th best in the US for effective total on state and local taxes with regards to median household income.
• Tax Reimbursement Incentive
  Idaho businesses that create new full-time jobs with total average wages at or above the county average may be eligible for a tax reimbursement of up to 30% of employee withholding, sales and income taxes for a negotiated period of up to 15 years. Employee withholding taxes are capped at 6.925% of salary for the purposes of calculating incentives benefits. The average reimbursement benefit is 21% over 10 years. To qualify, companies must create at least 20 full-time, permanent jobs in rural areas or 50 new jobs in an urban setting.

To form your corporation in Idaho, file the Articles of Incorporation with the Idaho Secretary of State. Idaho charges a $100 filing and has switched to online filings. They will accept the old paper form for an additional $20 fee. If you hire Active Filings to start your corporation, we file online and save you time and money.

To start an LLC in Idaho, you must file a Certificate of Organization with the Idaho Secretary of State. You can file the document online or by mail. The Certificate of Organization costs $100 to file. Once filed with the state, this document formally creates your Idaho LLC. If you hire Active Filings, we can do all of this for you.

Your Certificate of Organization must include the following details:

What is the Idaho Annual Report?
Every Idaho corporation, LLC, nonprofit, and partnership (LP, LLP, etc.) is required to file an Idaho Annual Report once a year with the Idaho Secretary of State. Most states charge a filing fee. Not Idaho. It’s free for online filing, and $20 if you paper file.

When do I need to file?
Your annual report filing due date will be the last day of your anniversary month. For example, if you registered your business on August 20th, 2019 then your filing due date would be the last business day in August 2020.

Forget when you formed your business? You can easily look it up by searching the Idaho Secretary of State database. There are no filing fees for annual reports submitted online. If you choose to file in person, you will need to pay a $20 filing fee.

How do I file?
Go to the Idaho SOSbiz Login page. If you do not have an account you will need to create one by clicking “CREATE AN ACCOUNT.”

Once you are logged into your account, you’ll simply enter the required information and complete your report online.

Paper forms can only be submitted in person at the Idaho Secretary of State office: 450 N. 4th Street
Boise, ID 83720-0080.

Paying taxes is like going to the dentist. No one wants to do either one. Taxes are, however, an integral part of successfully doing business in America. While we’re not tax professionals, we definitely will do our best to try and explain what kind of taxes your business will be expected to pay.

How will my corporation be taxed?
Corporations face “double taxation.” First they pay taxes on net profits from the business, and then get hit a second time when taxed on the dividends they receive from those earnings. Dividends are taxed at the shareholder’s personal tax rate. An LLC doesn’t have this problem, which means anyone looking to form a corporation should take note of a state’s corporate income tax and personal income tax.

How will my LLC be taxed?
Single member LLCs, meaning it’s just you running your business, are treated like sole proprietorships by the IRS. This means that any profits or losses your LLC experiences, will pass-through to you as the single owner. All you have to do is file a Schedule C with your personal tax return (IRS Form 1040).

What if my LLC has more than one member?
As with a single member LLC, the IRS will view your multi-member LLC as a partnership. The LLC will retain it’s pass-through tax status, with a few wrinkles with regards to paperwork. Instead of one member filing a 1040, instead each member will have to file a Return of Partnership Income form (IRS Form 1065). This document lets the IRS check and make sure each owner is reporting their income properly. Beyond that, each LLC owner will attach a Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.) to their Form 1040. This form shows the IRS each member’s share of the LLC’s profits and losses.

Here’s a tip: if your LLC is going to have more than one member, it would be a good idea to draw up a simple operating agreement. Most states don’t require an LLC to have one, but with so many cooks in the kitchen, you’ll want clear documentation with regards to ownership percentage, voting rights, distribution of profits and losses, as well as rules for buying out a member. You won’t be required to file the agreement, but it should be signed by each member and kept with the LLC’s important documents.

Beyond the basic information you’ll also need:
• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
• checking and savings account interest

What tax forms do I need to file?
Corporations: ID41
Partnerships: ID65
LLCs: ID40

What’s the Idaho corporate income tax rate?
Idaho has a flat corporate income tax rate of 7.6%. Easy calculation, makes for time saved figuring out what your business owes. $200,000 in taxable income? 200,000 x .076 = $15,200. Boom. Done!

It should be noted that even if your taxable income is $0, Idaho still charges corporations a minimum income tax of $20.

What’s the personal income tax rate in Idaho?

$0.00+              1.12%
$1,472.00+       3.12%
$2,945.00+       3.62%
$4,417.00+       4.62%
$5,890.00+       5.62%
$7,362.00+       6.62%
$11,043.00+     6.92%

When are my tax returns due?
Idaho returns are due April 15th.

What if I need an extension?
If you cannot file your return by the due date, Idaho allows you an automatic six-month extension of time to file. You do have to file a form to get an Idaho state tax extension. To qualify for the automatic extension, you must file your Idaho state tax return by October 15, 2020.

To avoid paying a penalty, the amount of tax withheld and other payments you have made must be at least 80% of your current year’s tax liability or 100% of the total tax reported on your income tax return for the preceding tax year. File Form 51 with your payment. Even though an extension gives you additional time in which to file, the tax is due on the original due date of the return. You must pay interest on any tax not paid by the original due date of the return.