Learn more about keeping your business compliant with state tax requirements.
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.
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:
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.
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.
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.