How Your Corporation Will Be Taxed
In this guide, you'll learn about the main types of tax in Minnesota that apply to corporations, including sales, self-employment, corporate and federal taxes.
How your corporation is taxed will depend on whether it's an S Corp or a C Corp.
Minnesota State Tax
There are three types of Minnesota tax you must pay to the MN Department of Revenue: income, sales and franchise. Depending on how your business is set up, you may also need to pay use tax.
Important: All of these taxes apply whether you have a C Corp or an S Corp.
Minnesota Income Tax
Anyone who takes earnings out of your corporation will need to pay MN income tax and will be taxed at the state's standard rates. Any employees will also need to pay state income tax. The current income tax brackets for Minnesota range from 5.35 percent to 9.85 percent depending on what your taxable income amount is.
You can use the tax tables provided by the Minnesota tax department to get an idea of how much you'll need to pay, but consult with your accountant or tax advisor to ensure you pay the proper amount.
Minnesota Sales and Use Tax
These tax types are similar enough that they're often categorized together. It's still important to understand the differences between them.
Federal Taxes for Corporations
Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Minnesota corporation is paying the correct amount, and that you're paying the correct individual amount.
Federal Taxes for C Corps
All shareholders who earn wages or a salary from a C Corporation must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA) and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.
You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.
Federal Taxes for S Corps
The Internal Revenue Service allows a corporation to be treated as an S Corporation for tax purposes, provided your business meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary and other income as distributions or withdrawals.
You do this by filing Form 2553, also known as an S Corp Election form, with the IRS. Incfile can also file the form for you. Use our S Corp Tax Calculator to get an idea of how much money you could save with this election.
Consult with your accountant or tax advisor for more information on reducing your self-employment tax through an S Corporation tax election.
Employee and Employer Taxes
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.
Other Taxes and Duties
Depending on your industry, you may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.
Speak to your accountant about any other taxes or duties you may need to withhold or pay.