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Taxes on Business Income in Idaho

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

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Iowa imposes a corporate income tax based upon corporate taxable net income is required in Idaho. Although domestic and foreign corporations and limited liability companies are required to file annual reports with the Secretary of State in Idaho, there is no fee for filing the report, and there are no other franchise taxes in the state. If you operate your business as a sole proprietorship or as a pass-through entity, your business income is reported on your personal income tax return. Personal income tax, based on a person's income during the tax year ranges from 1.6 percent to 7.8 percent of taxable income in Idaho.

In Idaho, 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 Corporate Income Tax

Domestic corporations (corporations organized in Idaho) and foreign corporations (corporations organized in a state other than Idaho) are subject to an Idaho income tax. The corporate income tax (also sometimes referred to as the Idaho franchise tax) rate is 7.4 percent. There is a minimum tax $20 imposed on all corporations. In addition, each corporation required to file an Idaho income tax return must pay a $10 permanent building fund tax.

Your corporation may elect to pay an alternative tax equal to 1 percent of gross sales volume if it meets all of the following qualifications:

  • your corporation is required to file a return, but its only activity in Idaho consist of sales
  • the corporation doesn't own or rent real estate or tangible personal property in the state, and
  • your annual gross sales made during the tax year in Idaho do not exceed $100,000

S Corporation Income Is Passed Through to Shareholders

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 federal 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 Idaho, 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.

Partnership Income Is Passed Through to Partners

If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their Idaho taxable adjusted gross income their distributive share of partnership income.

Limited Liability Companies Are Taxed Based on Federal Election

Idaho law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Idaho are classified as either partnerships or corporations for Idaho tax purposes. In Idaho, LLCs follow the federal rules on how they will be taxed. Accordingly, if your LLC is treated as a partnership for federal tax purposes, it will not be taxed on its net income. Instead, members must include in their Idaho taxable adjusted gross income their distributive share of LLC income.

If a business is classified as an association taxable as a corporation for federal income tax purposes, it will also be taxable as a corporation for Idaho tax purposes.

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