How to Incorporate in Indiana vs. How to Start a Indiana 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
  LLCs are pretty easy to maintain. An LLC can opt to be managed by its members, which allows all owners to share in the business’s day-to-day decision-making, or by managers, who can be either members or outside managers. This is helpful if members aren’t experienced in running a business and want to hire people who are. Corporations have to hold meetings, keep minutes, record votes, and generally file more paperwork compared to an LLC. However, corporations are perpetual, which means they can exist as their own entity forever, whereas an LLC will generally dissolve and cease to exist upon the resignation, death, or bankruptcy of the member or members.
• Desired tax structure
  LLC is generally organized as a pass-through entity, meaning its profits go directly to its members without being taxed by the government on the company level. Instead, they’re taxed on members’ federal income tax returns. This makes filing taxes easier than if your business were taxed on the corporate level. Corporate profits are subjected to what can be referred to as “double taxation,” which means that a corporations profits are taxed, and then you get hit with taxes at the personal income level. The Wyoming LLC is where it’s at on tax structure.
• Investors
  If you plan to raise capital for your business, then incorporation probably makes the most sense. Investors prefer the favorable taxation rules of a corporations, and unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed. This means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. LLCs If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.

Attention should be paid to the idea of prestige, and how the name and makeup of corporations affords them a certain aura of importance. While the small business owner with an LLC is the backbone of America, corporations are what you see on TV and read about in papers. Walmart, Nike, Amazon all share the corporate structure. People at work talk about owning shares of Tesla. If prestige is what you want, the “LLC,” while an excellent choice for small to medium sized businesses, can’t hold a candle to the “Inc.”

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 Indiana. 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.)

• Biennial Reporting
  Having to file reports with a state can be time consuming and costly. Indiana cuts the pain in half by asking for a biennial report. And it’s only $50 ($32 if you file online). Pretty good deal if you ask us. It also shows that the state isn’t looking to nickel and dime it’s small business owners.
• Corporate Income Tax
  In 2011, corporations doing business in Indiana were subject to a 8.5% tax rate. Indiana has made the decision to stop gouging businesses, and has instead decreased it’s tax rate. Currently the flat rate is 5.5% and will drop to 4.9% by June 30, 2021. Pretty awesome to see taxes go down instead of up, which means businesses have more money to re-invest, to pay their employees, to hire more people, or to put in their pockets. This is a win if you ask us.
• Low Personal Income Tax
  Indiana has a flat state income tax rate of 3.23%, which means that all Indiana residents pay the same percentage of their income in state tax. This is viewed as progressive by some tax experts and regressive by others. Consider that an LLC with profits of $10,000 will pay the same percentage as an LLC with $100,000 in profits, though the amount paid is obviously different.
• No Local Sales Tax
  Indiana levies a statewide 7% sales tax, which ranks among the highest in the nation. The good news is it’s a flat rate, and doesn’t change depending on what county you are in. Some states levy low sales tax, but allow their municipalities to tack on extra sales tax, which sometimes ends up with the consumer paying upwards of 10% in sales tax in some states. Not so in Indiana. High sales taxes hurt business and consumers alike. Businesses have to pass the taxes onto consumers, and the consumers have less money in their pockets for purchasing goods and services. Indiana charges one rate, and doesn’t nickel and dime you based on where you make a purchase.

To start a corporation in Indiana, simply file Articles of Incorporation with Indiana’s Business Services Division. You can file the document online or by mail. If you paper file the state charges $100, but if you file online you pay only $98. “I want my two dollars!” Hire Active Filings and rest easy knowing we’ll take care of the heavy lifting and make sure all your paperwork is filled out perfectly.

To start an LLC in Indiana, you must file Articles of Organization with the Indiana Business Services Division. You can file the document online for $98, or you can file by mail for $100. When you hire Active Filings we file online.

What is a biennial report?
Indiana asks that states file a biennial report. Most states require business entities doing business inside the state boundaries to file a yearly report. At it’s most simple, a company’s annual report is a way for the state to check the pules of the business. Has anything changed? Is the address the same? Has the LLC added or dropped a member or members? Did the corporation change addresses? Is the business still open? Things like that. Indiana asks for businesses to check in every other year, which simplifies things and gives business owners more time to prepare and file their reports. If you miss the filing date, states may penalize you financially, and eventually possibly dissolve the company, so it is very important to make sure annual report filings are on time and correct. This is why it’s important to hire a service like Active Filings. We’ll make sure you never miss a deadline, and in fact we’ll have the information ready way in advance, so you can focus more on running your business and less on talking to the state.

What information do I need when I’m filling out the biennial report?
Your business’s name and address.
Names and addresses of officers and directors (if a corporation).
Names and addresses of managers or members (if an LLC).
Name and address of your registered agent.
Type of business your company is involved in.

How do I file my Indiana Business Entity Report?

You can file your Indiana Business Entity Report online or by mail. Either way, you’ll need to visit Indiana’s Secretary of State, Business Services Division website, INBiz.

Go to the INBiz Login page and enter your email address and password. If you don’t have an account, you can create one by clicking “Sign up now.”

When filling out the business entity report, you’ll include the following information and update it if necessary:

Name and address of the company.

Name and address of your registered agent in Indiana. (hello there, have you met Active Filings?)

Names and addresses of members/managers or directors/officers.

To File by Mail:

On the state website, go to the Division Forms page and click “Business Forms.”

Select “Business Entity Report 48725”

Download and print a business entity report.

If filing online, you can pay the fee with a credit card. If mailing your form, include a check or money order payable to the Secretary of State.

Mail your report to:

302 W. Washington Street
Room E018
Indianapolis, IN 46204

Let’s be honest, taxes are like root canals. No one enjoys them. They are, however, an integral part of keeping your business legal and healthy. While we’re not tax professionals, we’ll definitely 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, which reports profits or loss from your business, 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 require 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: IN-20
Partnerships: IN-65 (plus the K-1 form)
LLCs: IN-40

What is Indiana’s corporate tax rate?
Funny you should ask, because Indiana has been reducing their corporate tax rate since 2011 when it reached a high of 8.5%. Currently Indiana’s rate is 5.5% and will shrink to 5.25% by July 2020, and level off with a tax rate of 4.9% by end of June 2021.

Currently the tax rate is a flat 5.5%.

5.5% from July 1, 2019, through June 30, 2020

5.25% from July 1, 2020, through June 30, 2021

4.9% after June 30, 2021

What is Indiana’s personal income tax rate?
Indiana has a flat state income tax rate of 3.23%, which means that all Indiana residents pay the same percentage of their income in state taxes. Unlike the federal income tax system, rates do not vary based on income level.

When are my taxes due?
Indiana business tax returns are due by the 15th day of the 4th month after the end of the tax year — or April 15 for calendar year filers. If you cannot file by that date, you may request a state tax extension.

What if I need an extension?
There are two ways to get an Indiana business tax extension:

1. If you have a valid 6-month Federal business extension (IRS Form 7004), you will automatically be granted an Indiana tax extension. In this case, you don’t need to file a separate state extension request. The deadline for your Indiana tax return will be moved to 30 days after the Federal extension deadline. (Note: The Federal extension deadline is September 15 for most businesses). A copy of your IRS-approved Form 7004 must be attached to your Indiana return when it’s filed.

2. If you don’t have a Federal tax extension, or if you need an extension beyond the 6-month automatic extension, you must submit a written request to the Indiana Tax Administration Division for a special extension of time to file. Make sure to do this before the filing deadline. Your request must explain why the extension is needed and for how long. The Tax Administration Division will then send you a notice of approval or rejection.