Who Pays More Idaho Taxes on Owner/Shareholder Income?
When you first see that 21 percent tax rate for the Idaho C corporation, you must think that this could be the choice of entity for your Idaho business operation.
Further, when you find yourself in the out-of-favor group for the 20 percent deduction, you naturally gravitate to thinking about the Idaho C corporation, perhaps as a means of getting even.
The table below gives you a good look at how you would pay taxes on your profits, depending on your Form 1040 tax bracket.
For Example. Let’s say that you are in the 34 percent tax bracket, and let’s say that you have $100,000 in profits.
If you operate as an Idaho S corporation, the profits come to you on a K-1, and you pay your Form 1040 taxes at the 34 percent rate, for a total tax on your Idaho S corporation profits of $34,000.
If you operate as an Idaho C corporation, the profits are first taxed at the Idaho C corporation level at a rate of 21 percent, for a tax of $21,000. This leaves you with $79,000 of the $100,000 in profits available for distribution as a dividend to you.
You are in your “give me the money” mode, so to get the cash, you endure the double taxation, starting with the dividend tax of 15 percent. This creates an $11,850 tax ($79,000 x 15 percent).
Your tax bracket also triggers the net investment income tax (NIIT) that applies because of your dividend income. The NIIT is $3,002 ($79,000 x 3.8 percent).
Idaho Federal Taxes
As an Idaho C corporation, your total federal taxes on the $100,000 of income are $35,852, which consists of the following:
- Idaho C corporation taxes of $21,000
- 1040 dividend taxes of $11,850
- 1040 NIIT of $3,002
Based on the same $100,000 in profits, operating as an Idaho S corporation results in $34,000 to the government compared with the Idaho C corporation, which pays $35,853. The winner: The S corporation.
It’s All About the Idaho Fringe Benefits
However, this is not taking into consideration the numerous amounts of fringe benefits that the C corporation can provide its owners/shareholders with. If you tax plan correctly, the C corporation can be more profitable than the S corporation.