Taxes on Business Income in Mississippi
Corporations in Mississippi are subject to tax on their taxable income attributable to Mississippi. This tax ranges from three to five percent. If you operate your business as a sole proprietorship or via a pass-through entity, then you must report your business income on your personal tax return.
In Mississippi, 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 Liable for Corporate Income Tax
Domestic corporations (corporations organized in Mississippi) and foreign corporations (corporations organized in a state other than Mississippi) are subject to a Mississippi income tax. The regular corporate income tax is computed as follows:
|Taxable Net Income ||Tax Rate |
|First $5,000 ||3% |
|The next $5,000 ||4% |
|In excess of $10,000 ||5% |
S Corporation Income Passes 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 corporate level federal 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. Mississippi extends this favorable tax treatment to state corporate income tax liability. Thus, S corporations will not be subject to the corporate income tax.
In Mississippi you must file a separate state election to become an S 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 Mississippi taxable adjusted gross income their distributive share of partnership income.
Federal Classification Governs LLC Taxation
Mississippi law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Mississippi are classified as either partnerships or corporations for Mississippi tax purposes. LLCs follow the federal rules on how they will be taxed. Accordingly, if your LLC is treated as a partnership on the federal level, then it will not be taxed on its net income. Instead, members must include in their Mississippi 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 Mississippi tax purposes.