Franchise Tax
A franchise tax is a fee charged by a state government to corporations and businesses to do business in that state. Rather than being a portion of your income, it is typically a flat amount that is charged every year.
For example, the franchise fee for Wyoming LLCs is $50, so whether you had a company that did $0 in revenue or if your company did $1,000,000 in revenue, you will still pay that $50 franchise fee.
Income Tax
In contrast, the federal government (and many state governments) have an income tax for companies that functions similarly to personal income taxes. These are based on a percentage of your company’s income, so if you made $10,000 and it had a 20% tax rate, your state tax would be $2,000.
You will want to research what state your company is in so you know whether you have a franchise tax or an income tax. Bookmate does not file franchise taxes.
This is one of, if not the main reason, most people form their companies in Delaware, Wyoming, or Florida. These states are very business friendly, and only have a franchise fee rather than a state income tax. Also, remember this is separate from your federal tax filing as we have both federal and state taxes, and if applicable, sales tax which is covered in another section below.
Filing your annual franchise tax takes about 10 minutes and can be done on your respective state’s website (Follow the links for Wyoming and Delaware). If you do have a state income tax filing to do, you may want to contact a tax professional.
Next steps?
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