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Taxes on Business Income in Georgia

Filed under State Taxes. Fact checked on February 12, 2013.

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Georgia assesses a corporate "net worth" tax and a corporate level income tax. If you operate your business as a sole proprietorship, a partnership or an LLC, you will report your business income on your personal tax return.

In Georgia, 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.

Corporations Must Pay "Net Worth" and Corporate Income Tax

Corporate income tax. All C corporations are required to pay an annual corporate tax of 6 percent on the amount of income that was generated in Georgia. Any income generated outside of Georgia will be subtracted out of net income for purposes of calculating Georgia corporate income taxes.

"Net worth" tax. Georgia imposes "net worth" tax on the difference between assets and liabilities (paid-in capital). This tax applies to both Georgia corporations and non-Georgia corporations for the privilege of doing business in the state. It tax is based on the net worth of a corporation and is levied in exchange for the privilege of doing business or exercising a corporate franchise in Georgia.

The minimum tax is $10 for a net worth less than $10,001. The maximum is $5,000 for a net worth in excess of $22 million. The amount is calculated on Schedule L of the corporate tax return and is due with the corporate tax return.

For purposes of this calculation, paid-in capital includes the following items:

  • the value of the corporation's issued capital stock ( capital stock is the total amount of stock authorized for issue by a corporation)
  • the value of any additional contributions the shareholders have made to the company
  • the value of the retained earnings (the corporation's reinvested income not distributed to shareholders as dividends) of the corporation

S Corporation Income Taxed at Personal Rates

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.

In Georgia, the law extends this favorable tax treatment to state corporate income tax liability and S corporations will not be subject to the corporate income tax. However, your S corporation will be required to withhold personal income tax on amounts paid to nonresident shareholders.

Partnership Income Taxed At Personal Rates

If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their Georgia taxable adjusted gross income their distributive share of partnership income. Additionally, your partnership will be required to withhold personal income tax on amounts paid to nonresident partners.

LLCs Taxed Based on Federal Election

Georgia law recognizes businesses operating as limited liability companies (LLCs). As an LLC, you will be treated, for tax purposes, exactly like a partnership if you are classified as a partnership for federal income tax purposes. Accordingly, your LLC will not be taxed on its net income. Instead, members must include in their Georgia taxable adjusted gross income their distributive share of LLC income. Additionally, your LLC will be required to withhold personal income tax on amounts paid to nonresidents.

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