Taxes on Business Income in Wisconsin
A corporate income tax, often referred to as the franchise tax, is required from most corporations doing business in Wisconsin. If you operate your business as a sole proprietorship or via a pass-through entity, then you must report your income on your personal income tax form.
In Wisconsin, 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 Subject to Corporate Income Tax
Domestic corporations (corporations organized in Wisconsin) and foreign corporations (corporations organized in a state other than Wisconsin) are subject to a Wisconsin income tax. The regular corporate income tax is computed at 7.9 percent of corporate net income.
Corporations with at least $4 million in gross receipts for the taxable year must also pay recycling surcharge based on income tax liability without regard to tax credits. The minimum surcharge $25 and the maximum is $9,800.
S Corporation Income Passed Through to Resident Shareholders
If you meet the federal tax law requirements to operate as an S corporation, the Congress 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.
Wisconsin extends this favorable tax treatment to state corporate income tax liability, and S corporations will not be subject to the corporate income tax. However, an S corporation that has two or more qualifying nonresident shareholders needs to file a tax return in order to report and pay the Wisconsin income tax owed by those shareholders.
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 Wisconsin taxable adjusted gross income their distributive share of partnership income.
LLCs Taxed Based on Federal Election
Wisconsin law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Wisconsin are classified as either partnerships or corporations for Wisconsin 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 Wisconsin 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 Wisconsin tax purposes.