Taxes on Business Income in Louisiana
Income tax on business income computed based upon corporate taxable net income is required in Louisiana. Louisiana is one of the few states that tax S corporations in the same manner as regular corporations, although the amount of tax is adjusted based upon the domiciles of the shareholders. If you operate your business as a sole proprietorship, a partnership or a limited liability company, you must report your business income on your individual tax return.
In Louisiana,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.
C Corporations Are Subject to Corporate Income Tax
Domestic corporations (corporations organized in Louisiana), foreign corporations (corporations organized in a state other than Louisiana) and entities that are taxed as corporations are subject to a Louisiana income tax. The corporate income tax is computed as follows:
|Taxable Income ||Rate of Tax |
|First $25,000 ||4% |
|Over $25,001 to $50,000 ||$1,000 plus 5% on amount over $25,000 |
|Over $50,001 to $100,000 ||$2,250 plus 6% on amount over $50,000 |
|Over $100,001 to $200,000 ||$5,250 plus 7% on amount over $100,000 |
|Over $200,000 ||$12,250 plus 8% on amount over $200,000 |
S Corporations Taxed As Regular Corporations
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 corporate level federal income tax. However, you 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.
However, Louisiana taxes S corporations in the same manner as regular corporations, with one exception. A corporation classified by the IRS as an S corporation may exclude all or part of its income derived from the activities of the corporation, depending upon the domicile of the shareholders. In general terms, the portion of income that can be excluded is determined by the ratio of the number of issued and outstanding shares of the S corporation’s capital stock owned by Louisiana resident individuals to total number of issues and outstanding shares of capital stock.
Shareholders who are Louisiana residents are required to file a Louisiana individual income tax return to report their portion of the income derived from the activities of the corporation. Shareholders who are nonresidents of Louisiana may elect either:
- to file the individual nonresident and part-year resident return to report their portion of the income derived from the activities of the S corporation or
- to allow the corporation to pay the tax at the corporate income tax rate on their portion of the income.
When electing the second method, the S exclusion must not offset the net income to be reported on the corporation income and franchise taxes return. An S corporation is not exempt from franchise tax. The franchise tax is imposed on an S corporation in the same manner as it is for a C corporation.
Partnership Income Passes 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 Louisiana taxable adjusted gross income their distributive share of partnership income.
Louisiana Follows Federal Election In Taxing LLCs
Louisiana law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Louisiana are classified as either partnerships or corporations for Louisiana tax purposes. LLCs follow the federal rules on how they will be taxed. Accordingly, if your LLC is treated as a partnership, it will not be taxed on its net income. Instead, members must include in their Louisiana 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 Louisiana tax purposes.