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What are my Massachusetts business income tax obligations?

How a business is taxed depends in part on the business’s legal form. The five most common types of Massachusetts businesses include corporations, S corporations, Limited Liability Companies (LLCs), partnerships, and sole proprietorships.

Most states subject corporations to a corporate income tax. In contrast, pass-through entities such as S corporations, LLCs, partnerships, and sole proprietorships are subject to a state’s tax on personal income. Tax rates vary widely among states regarding both corporate and private income.

Under Massachusetts tax law, a corporate excise tax is imposed. Corporate excise tax is generally based on both a measure of net worth and income. The corporate excise tax applies to corporations and, in some cases, S corporations. While LLCs and partnerships aren’t subject to excise tax, any personal income made is subject to taxation under individual state tax returns.

Taxation Based on Business Type
Corporations that operate in Massachusetts are subject to Massachusetts’s corporate excise tax.

S corporations, on the other hand, are not generally subject to separate federal income tax. Instead, taxable income passed through to individual stakeholders. Each shareholder is responsible for paying federal tax on his or her share of income received. Note that Massachusetts is unusual in that it requires S corporations to pay a corporate excise tax on either taxable tangible personal property or net worth.

Both Massachusetts partnerships and LLCs are considered pass-through entities at federal and state levels. As a result, they are not required to pay federal income tax, nor are they subject to Massachusetts’s corporate excise tax. LLC members receive income from the business and are individually responsible for federal and state taxes according to his or her share of the company’s revenue.

Sole Proprietorships, or one-person businesses, receive income from a personal business and is taxable as state income.

For help with your company tax filing, our highly-qualified attorneys are here to answer your questions.

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