How to Incorporate in Idaho vs. How to Start a Idaho LLC
A Guide to Choosing the Best Business Entity in Idaho
Are you interested in starting a business in Idaho, but not sure if you should form an LLC or start a corporation? Active Filings has the guide for you! We’ll walk you through the advantages and disadvantages of incorporating or forming an LLC in Idaho. Throughout this Idaho-specific corporation and LLC formation guide, you’ll discover exactly how to form either an LLC or corporation in Idaho, and learn the disadvantages and advantages of each business type.
At Active Filings we offer our customers peace-of-mind by establishing their companies fast, efficiently and at an affordable price. When you work with Active Filings, we’re confident that you’ll find out in no time why we are America’s most reliable business incorporation service.
LLCs vs. Corporations
LLCs and corporations both provide liability protection for their owners. This means that each business entity acts as a shield between the human element and the physical business, so that if a lawsuit was to be filed, or a bankruptcy was to occur, the owners of the business are not likely to see their personal assets (cars, homes, savings, investments, etc…) to be used to pay debts. But beyond that, most people don’t entirely understand the differences between LLCs and corporations. Active Filings is about to drop some knowledge. Let’s take a quick look at some of the structural differences between corporations and LLCs. People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.
- Ease of maintenance
Corporations have to keep minutes, hold meetings, and record votes and resolutions. LLCs require none of these things, saving you time and the overall hassle. There are fewer forms required for registering, and there are generally fewer start-up costs. The knock against LLCs is that they aren’t perpetual. Unless your LLC’s operating agreement specifies exactly what happens in the event a member dies, resigns or declares bankruptcy, most states require that LLCs dissolve when these events occur. Corporations, however, can exist as their own entity, regardless of what happens to the individuals involved in the business.
- Desired tax structure
By default an LLC is a pass-through tax entity, meaning that the income is not taxed at the company level. The income or loss as shown on this return is ‘passed through’ the business entity to the individual members, and is reported on their individual tax returns. Less paperwork. More straightforward. A corporation is a separately taxable entity, and pays tax on the income prior to any dividend distributions to shareholders. If and when corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders.
When it comes to investing in a company, most investors feel most comfortable investing their hard earned money into corporations. The biggest reason investors prefer corporations is their favorable taxation rules. Unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed, which means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.
A final thought on LLCs and corporations and the idea of prestige. While the local shop down the street is a fine upstanding company, their LLC just doesn’t have the prestige of a Nike, Inc or a Walmart, Inc. When you hear the word corporation, many people think of big multi-national companies with tons of resources at their disposal. While the LLC is perfect for the small to medium-sized business, the words Limited Liability Company (LLC) doesn’t carry the same weight as the corporation. While LLCs first came into being in the late 1970s, the corporation is the oldest recognized business entity in the US, and thus they carry with them an aura of prestige.
Idaho LLCs vs. Idaho Corporations
While we’ve already broken down the differences between an LLC and a corporation, we’re going to dig a bit deeper into the pros and cons of forming an Idaho LLC or corporation. Take a look below to see what makes Idaho LLCs and corporations unique:
- Flat Corporate Tax
Idaho’s flat corporate flat tax of 7.6% is good for a number of reasons, simplicity being one. The current U.S. tax system is so complicated that it costs taxpayers a lot just to implement it. Another benefit to a flat tax is improved fairness. An investigation by “Money” magazine showed that when 45 different tax professionals prepared the same return, it resulted in 45 different tax calculations. Even a Treasury Department study found that callers to the IRS toll-free help lines got the wrong answers 25% of the time.
- No Cost Annual Report
Most states charge an arm and a leg with regards to filing their annual and biennial reports. Idaho charges nothing, though if you file it by paper it will cost $20. Still super affordable.
- Relatively Low Taxation
With a graduated income tax ranging from 1.12% to 6.92%, Idaho ranks 8th best in the US for effective total on state and local taxes with regards to median household income.
- Tax Reimbursement Incentive
Idaho businesses that create new full-time jobs with total average wages at or above the county average may be eligible for a tax reimbursement of up to 30% of employee withholding, sales and income taxes for a negotiated period of up to 15 years. Employee withholding taxes are capped at 6.925% of salary for the purposes of calculating incentives benefits. The average reimbursement benefit is 21% over 10 years. To qualify, companies must create at least 20 full-time, permanent jobs in rural areas or 50 new jobs in an urban setting.
How to Incorporate in Idaho
To form your corporation in Idaho, file the Articles of Incorporation with the Idaho Secretary of State. Idaho charges a $100 filing and has switched to online filings. They will accept the old paper form for an additional $20 fee. If you hire Active Filings to start your corporation, we file online and save you time and money.
Your name must include “Corporation,” “Incorporated,” or an abbreviation like “Corp” or “Inc.” Example: Amazon, Inc.
Most people forming corporations are looking to make some money. If your corporation is a benefit corporation (formed for educational or charitable purposes), an insurance company or a trust, you’ll have to select this designation in your Articles. Otherwise you can leave this blank.
Skip this section if you want your LLC to start right away. Need to wait a bit? You can list a start date up to 90 days in the future.
List the number of shares you’d like to create. You must list at least one.
This is the address where you’d like to receive mail from the state (all your legal documents go to your assigned registered agent). When you hire Active Filings our info goes here.
You can act as your own registered agent or you can hire a person or business to act as your agent. Registered agents receive important mail and documents from the state, as well as any lawsuits that may be filed against a business. Registered agents have to be able to accept all such correspondence during regular business hours, which is why it often makes sense to hire this service out. Lucky for you, Active Filings is here to help. When you hire us, we’ll act as your registered agent, so you’ll never have to worry about potentially missing important state notifications.
Your incorporator is the person authorized to sign and submit your Articles. It doesn’t have to be a director, officer, or anyone in your corporation. Incorporators need to include their name, address, signature and date. When you hire Active Filings, we’ll be your incorporator.
You can choose to enter the names and addresses of your Idaho corporation’s directors, but you don’t have to.
How to Start an LLC in Idaho
To start an LLC in Idaho, you must file a Certificate of Organization with the Idaho Secretary of State. You can file the document online or by mail. The Certificate of Organization costs $100 to file. Once filed with the state, this document formally creates your Idaho LLC. If you hire Active Filings, we can do all of this for you.
Your Certificate of Organization must include the following details:
Your name must include “Limited Liability Company,” “Limited Company,” or an abbreviation like “LLC” or “LC.” Example: Joe’s Idaho BBQ, LLC.
Your principal office needs to be a street address. You can’t use a P.O. Box. You can list your home office, but remember that your Articles of Organization are a matter of public record. When you hire Active Filings, our address goes here, which means you’ll be able to have a little more privacy and security knowing that your information isn’t out there in the ether being used for nefarious purposes.
You can act as your own registered agent or you can hire a person or business to act as your agent.
List the address of an individual or a business that provides registered agent service. We prefer Active Filings. This is the address where your registered agent will be available. Again, no P.O. boxes, it must be a street address.
You are asked to provide the name and address of at least one governor for your LLC. Who has the authority to make decisions for the LLC?
This is the address where the Idaho Secretary of State will send your annual report notices. Don’t want to enter address after address in your Certificate, or don’t want to worry if the mail shows up on time? Hire Active Filings and our info goes here.
This is the person authorized to sign and submit your Certificate. It doesn’t have to be a LLC member. We think Active Filings makes a great organizer.
Idaho Annual Report Requirements
What is the Idaho Annual Report?
Every Idaho corporation, LLC, nonprofit, and partnership (LP, LLP, etc.) is required to file an Idaho Annual Report once a year with the Idaho Secretary of State. Most states charge a filing fee. Not Idaho. It’s free for online filing, and $20 if you paper file.
When do I need to file?
Your annual report filing due date will be the last day of your anniversary month. For example, if you registered your business on August 20th, 2019 then your filing due date would be the last business day in August 2020.
Forget when you formed your business? You can easily look it up by searching the Idaho Secretary of State database. There are no filing fees for annual reports submitted online. If you choose to file in person, you will need to pay a $20 filing fee.
How do I file?
Go to the Idaho SOSbiz Login page. If you do not have an account you will need to create one by clicking “CREATE AN ACCOUNT.”
Once you are logged into your account, you’ll simply enter the required information and complete your report online.
Paper forms can only be submitted in person at the Idaho Secretary of State office: 450 N. 4th Street
Boise, ID 83720-0080.
Idaho Business Taxes
Paying taxes is like going to the dentist. No one wants to do either one. Taxes are, however, an integral part of successfully doing business in America. While we’re not tax professionals, we definitely will do our best to try and explain what kind of taxes your business will be expected to pay.
How will my corporation be taxed?
Corporations face “double taxation.” First they pay taxes on net profits from the business, and then get hit a second time when taxed on the dividends they receive from those earnings. Dividends are taxed at the shareholder’s personal tax rate. An LLC doesn’t have this problem, which means anyone looking to form a corporation should take note of a state’s corporate income tax and personal income tax.
How will my LLC be taxed?
Single member LLCs, meaning it’s just you running your business, are treated like sole proprietorships by the IRS. This means that any profits or losses your LLC experiences, will pass-through to you as the single owner. All you have to do is file a Schedule C with your personal tax return (IRS Form 1040).
What if my LLC has more than one member?
As with a single member LLC, the IRS will view your multi-member LLC as a partnership. The LLC will retain it’s pass-through tax status, with a few wrinkles with regards to paperwork. Instead of one member filing a 1040, instead each member will have to file a Return of Partnership Income form (IRS Form 1065). This document lets the IRS check and make sure each owner is reporting their income properly. Beyond that, each LLC owner will attach a Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.) to their Form 1040. This form shows the IRS each member’s share of the LLC’s profits and losses.
Here’s a tip: if your LLC is going to have more than one member, it would be a good idea to draw up a simple operating agreement. Most states don’t require an LLC to have one, but with so many cooks in the kitchen, you’ll want clear documentation with regards to ownership percentage, voting rights, distribution of profits and losses, as well as rules for buying out a member. You won’t be required to file the agreement, but it should be signed by each member and kept with the LLC’s important documents.
Beyond the basic information you’ll also need:
• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
• checking and savings account interest
What tax forms do I need to file?
What’s the Idaho corporate income tax rate?
Idaho has a flat corporate income tax rate of 7.6%. Easy calculation, makes for time saved figuring out what your business owes. $200,000 in taxable income? 200,000 x .076 = $15,200. Boom. Done!
It should be noted that even if your taxable income is $0, Idaho still charges corporations a minimum income tax of $20.
What’s the personal income tax rate in Idaho?
When are my tax returns due?
Idaho returns are due April 15th.
What if I need an extension?
If you cannot file your return by the due date, Idaho allows you an automatic six-month extension of time to file. You do have to file a form to get an Idaho state tax extension. To qualify for the automatic extension, you must file your Idaho state tax return by October 15, 2020.
To avoid paying a penalty, the amount of tax withheld and other payments you have made must be at least 80% of your current year’s tax liability or 100% of the total tax reported on your income tax return for the preceding tax year. File Form 51 with your payment. Even though an extension gives you additional time in which to file, the tax is due on the original due date of the return. You must pay interest on any tax not paid by the original due date of the return.