Taxes on Business Income in Missouri
Missouri imposes a corporate income tax on business income attributable to Missouri. This tax is based upon corporate taxable net income. If you operate your business as a sole proprietorship or via a pass-through entity, your business income is reported on your personal income tax return.
In Missouri, 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 Missouri) and foreign corporations (corporations organized in a state other than Missouri) are subject to a Missouri corporate income tax. The tax rate is 6.25 percent of taxable Missouri income. In addition, certain local governments in Missouri, such as St. Louis, are authorized to levy a local income tax, so be sure to check with your local government.
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 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. Missouri 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 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 Missouri taxable adjusted gross income their distributive share of partnership income.
LLC Taxation Governed by Federal Election
Missouri law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Missouri are classified as either partnerships or corporations for Missouri 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 Missouri 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 Missouri tax purposes.