Indiana Corporate Tax Rate: Everything You Need to Know
The Indiana corporate tax rate refers to the tax that corporations are subject to, which differs from pass-through entities.3 min read
2. How Are S-Corporations Taxed in Indiana?
3. How Are LLCs Taxed in Indiana?
4. Partnership and Sole Proprietorship Taxes
The Indiana corporate tax rate refers to the tax that corporations are subject to, which differs from pass-through entities like LLCs, partnerships, sole proprietorships, and S-corporations that are subject to state taxation based on personal income. Corporate tax rates in Indiana are based on a corporation's adjusted gross income at a flat rate. Currently, the Indiana corporate tax rate is set to decrease every 12 months through at least 2021:
- 6 percent from July 1, 2017, through June 30, 2018
- 5.75 percent from July 1, 2018, through June 30, 2019
- 5.5 percent from July 1, 2019, through June 30, 2020
- 5.25 percent from July 1, 2020, through June 30, 2021
- 4.9 percent after June 30, 2021
When the tax cut was first passed in 2011, the corporate tax rate in Indiana was 8.5 percent. The reduction was included in an overall tax package that also lowered individual income taxes and personal property taxes, as well as repealing the estate tax. In 2016, the corporate tax rate was 6.5 percent, and Indiana's tax rate for personal adjusted gross income was a flat 3.23 percent, but it's been higher in the past.
A majority of states tax some type of business income derived from company business in the state. Only six states — Ohio, Washington, Wyoming, Nevada, Texas, and South Dakota — do not have corporate income. Of these six, four do have some type of gross receipts tax on corporations. These states are Ohio, Texas, Washington, and Nevada.
Corporate vs. Personal Income Tax
Tax rates for personal income and corporate income vary widely among states. Personal tax rates, which vary based on income amount, range from 0 percent for tiny amounts of taxable income to 9 percent in some states. Corporate tax rates are typically a flat rate no matter what the income level is, and typically range from 4 percent to 10 percent.
In addition to a corporate income tax or personal income tax, some states also impose a separate business tax, usually called a franchise or privilege tax. Indiana has a corporate income tax, but unlike many other states, there is no franchise or privilege tax that is generally applied to your business.
Corporate tax reductions seem to be an increasing trend in state tax policies, as corporate taxes make up only a small portion of the total tax collections, but can impact a business location or expansion decision. Reductions in corporate tax rates are good news for taxpayers because individuals are affected by corporate tax rates in the form of lower wages, higher prices, or reduced dividend payouts.
How Are S-Corporations Taxed in Indiana?
S-corporations differ from traditional C-corporations in that they are not typically subject to a separate federal income tax. S-corporations are created by first establishing a traditional corporation and then filing a form with the IRS to choose S-corporation status. Any taxable income is passed through to individual shareholders. An S-corporation does not need to actually distribute the income to a shareholder for him or her to be subject to personal federal tax on their share.
In Indiana, S-corporations are covered under the federal S-corporation election and therefore do not pay any corporate income tax to the state. Like other states, shareholders will owe tax on their share of the S-corporation's income.
How Are LLCs Taxed in Indiana?
LLCs are like S-corporations and are treated as pass-through entities. Therefore, they do not pay a separate income tax to Indiana or the federal government. The income from the LLC is distributed to individual members who are then responsible for paying the federal and state taxes on any amounts distributed to them. For tax purposes, an LLC is classified as a partnership or, for a single-member LLC, a disregarded entity by default. LLCs can elect to be classified as a corporation. This would mean the LLC would also be subject to Indiana corporation net income tax.
Partnership and Sole Proprietorship Taxes
Partnerships distribute their income to individual partners, who then pay the federal and state tax on the amounts distributed to them. With a sole proprietorship, you receive the income directly and you are responsible for paying taxes on that income.
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