Taxes on Business Income in Alaska
In Alaska, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business may, in some cases, decide whether you or your business pays income taxes on the business income.
The fact that Alaska doesn't impose a personal income tax can make your choice of entity for operating your business more important than ever. If it is possible to set up your business as a sole proprietor, partnership or S corporation, you will not have to pay Alaska corporate income tax on your income. Of course, business considerations, such as personal liability and financing growth, as well as state tax implications must be taken into account when making a decision as to how to best operate your business. You may want to consult with your financial professional when making this important decision.
Income of Regular Corporation Is Taxed
Domestic corporations (corporations organized in Alaska) and foreign corporations (corporations organized in a state other than Alaska) are both subject to an Alaska income tax. The corporate net income tax is imposed on the entire taxable income derived from sources within Alaska. Income from sharing in a regional Native corporation's revenue that is required to be divided under the Alaska Native Claims Settlement Act is taxable income of the recipient, except that a recipient subject to the oil and gas corporate income tax must treat the income as taxable income under that tax. Tax rates are as follows:
|If Taxable Income Is: ||The Tax Is: |
|Less than $10,000 ||1% of taxable income |
|$10,000 but less than $20,000 ||$100 plus 2% of taxable income over $10,000 |
|$20,000 but less than $30,000 ||$300 plus 3% of taxable income over $20,000 |
|$30,000 but less than $40,000 ||$600 plus 4% of taxable income over $30,000 |
|$40,000 but less than $50,000 ||$1,000 plus 5% of taxable income over $40,000 |
|$50,000 but less than $60,000 ||$1,500 plus 6% of taxable income over $50,000 |
|$60,000 but less than $70,000 ||$2,100 plus 7% of taxable income over $60,000 |
|$70,000 but less than $80,000 ||$2,800 plus 8% of taxable income over $70,000 |
|$80,000 but less than $90,000 ||$3,600 plus 9% of taxable income over $80,000 |
|$90,000 or more ||$4,500 plus 9.4% of taxable income over $90,000 |
Limited liability Company (LLCs) Income Is Not Taxed
Alaska law recognizes businesses operating as limited liability companies (LLCs). Alaska follows the federal law that classifies domestic and foreign LLCs as partnerships. However, if the LLC has elected to be taxed as a corporation for federal tax purposes, it will be taxes as a corporation for Alaskan tax purposes.
S Corporation Income Is Not Taxed
If you meet the federal tax law requirements to operate as an S corporation, the IRS allows your business to "pass through" its income to the shareholders. This means that your business will not pay any IRS corporate level income tax. However, you'll have to claim your entire share of the business income on your personal federal income tax return even if you did not take any money out of the business.
Alaska has adopted the federal S corporation provisions. In Alaska, if you have an S corporation, you will not have to pay corporation or personal income tax on the profits from your company. Alaska does not charge S corporations an income tax and the state also does not have a personal income tax.
Partnership Income Is Not Taxed
If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their gross income their distributive share of partnership income. The partnership income will not be taxed by Alaska because Alaska does not have a personal income tax.