North Carolina S Corporation Tax Return: Everything to Know
When filing a North Carolina S-corp tax return, you will be required to file the forms even though you will not have to pay any corporate taxes.3 min read
When filing a North Carolina S-corporation tax return, you will be required to file the forms for informational purposes even though you will not have to pay any corporate taxes since an S-corporation is a pass-through entity. Taxes will be paid at the shareholders' level on their personal tax returns.
North Carolina S-Corporation Taxes
While both corporate and personal income tax rates can vary from state to state, corporate income tax will often fall between 4 percent and 9 percent with personal income running between 0 percent and 9 percent. North Carolina imposes both a corporate income tax and a franchise tax that will most often apply to S and C-corporations. North Carolina corporations pay a flat tax rate of 6.9 percent, though with an S-corporation, the portion of the business income that you receive will be claimed on your personal tax return
In the state of North Carolina, your business tax return is due by the 15th day of the fourth month that follows the end of your fiscal year. For example, if the end of your corporate year is December 31, your tax returns will be due on April 15.
The franchise tax that North Carolina imposes will tax the corporation's net worth. To calculate franchise tax, your corporation will be required to pay whichever of the three options for determining tax yields the largest amount.
- Tax on capital stock, surplus, and undivided profits
- 55 percent of the appraised value for all of the corporation's property located in North Carolina
- The investment in all tangible property located in North Carolina
No matter which situation will apply to you the tax rate will be $1.50 per $1,000 or 0.0015 percent. There is a minimum of $35 if not met by previous calculations and the franchise tax will be due as part of your general corporate return.
Five Most Common Forms of North Carolina Business Entities
In the state of North Carolina, there are five primary business entities for owners to choose from, and depending on which one they choose, their taxes will often be affected. The five most common business types include:
- C-corporations - In North Carolina, C-corporations will be required to pay both the franchise tax and the corporate tax each year. Shareholders will also be required to pay income tax on their distributions on their personal returns.
- S-corporations - All S-corporations will start off with a C-corporation designation and can then elect the S status by filing forms with the IRS if they meet the eligibility requirements. In general, an S-corporation will not be subject to the federal income tax that C-corporations will be required to pay. Instead, they will function as a pass-through entity where the income will be taxed at the shareholder level, which will eliminate the double taxation that occurs with C-corporations. Even though S-corporations are not required to pay corporate tax, they are required to pay the North Carolina franchise tax.
- Limited Liability Corporation - LLCs are similar to S-corporations in the fact that they are pass-through entities for taxation. An LLC's individual members will pay federal and state taxes for the income that was disbursed to them from the business on their personal tax return. The company will not have to pay corporate federal income taxes or state franchise tax. LLC's are often treated like partnerships for tax purposes, and single-member LLCs have disregarded entities in the eyes of the IRS. You can also have your LLC designated as a corporation, which will subject the company to state franchise taxes.
- Partnerships - In a partnership, the income is distributed between partners who are subject to federal income tax on each partner's personal 1040 tax return. Therefore, partnerships are considered pass-through tax entities as well.
- Sole Proprietorships - When a business is classified as a sole proprietorship, the income tax and business losses pass through to the sole proprietor's personal tax return.
For corporations that operate in multiple states, it is essential to be aware that various states may impose taxes for the property you have in that state or may even consider that location as the "nexus" of your business and therefore subject you to higher or additional taxes. Understanding the laws for each state in which you do business is vital to keep your tax burden from becoming too high.
If you need help with your corporation's North Carolina S-corporation tax return, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.