How to Incorporate in Alaska vs. How to Start a Alaska LLC
A Guide to Choosing the Best Business Entity in Alaska
Are you interested in starting a business in Alaska, but not sure if you should form an LLC or start a corporation? Active Filings has the guide for you! We’ll walk you through the advantages and disadvantages of incorporating or forming an LLC in Alaska. Throughout this Alaska-specific corporation and LLC formation guide, you’ll discover exactly how to form either an LLC or corporation in Alaska, and learn the disadvantages and advantages of each business type.
At Active Filings, we take care of the incorporation process for your small business, no matter which business structure you choose. Our fast services and affordable prices will show you why Active Filings is America’s most reliable business incorporation service.
LLCs vs. Corporations
People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.
Corporations have to keep minutes, hold meetings, and record votes and resolutions. LLCs require none of these things, saving you time and the overall hassle. There are fewer forms required for registering, and there are generally fewer start-up costs. The knock against LLCs is that they aren’t perpetual. Unless your LLC’s operating agreement specifies exactly what happens in the event a member dies, resigns or declares bankruptcy, most states require that LLCs dissolve when these events occur. Corporations, however, can exist as their own entity, regardless of what happens to the individuals involved in the business.
By default an LLC is a pass-through tax entity, meaning that the income is not taxed at the company level. The income or loss as shown on this return is ‘passed through’ the business entity to the individual members, and is reported on their individual tax returns. Less paperwork. More straightforward. A corporation is a separately taxable entity, and pays tax on the income prior to any dividend distributions to shareholders. If and when corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Complicated. Paperwork. The Alaska LLC wins this one.
When it comes to investing in a company, most investors feel most comfortable investing their hard earned money into corporations. The biggest reason investors prefer corporations is their favorable taxation rules. Unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed, which means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.
One final thought on LLCs and corporations. While the local florist down the street is a fine upstanding company, their LLC just doesn’t have the prestige as a Nike, Inc or a Walmart, Inc. When you hear the word corporation, many people think of big multi-national companies with tons of resources at their disposal. While the LLC is perfect for the small to medium-sized business, the words Limited Liability Company (LLC) doesn’t carry the same weight as the corporation. While LLCs first came into being in the late 1970s, the corporation is the oldest recognized business entity in the US, and thus they carry with them an aura of prestige.
Alaska LLCs vs. Alaska Corporations
While we’ve already broken down the differences between an LLC and a corporation, we’re going to dig a bit deeper into the pros and cons of forming an Alaska LLC or corporation. Take a look below to see what makes Alaska LLCs and corporations unique:
Alaska is one of five states which provides the same protection to single member LLCs as other states do for multi-member LLCs. In most states, creditors of a single member LLC may “pierce the veil” to access the assets of the LLC to satisfy legal demands, but because Alaska offers such stringent protections under the Delaware Corporations Act that these same creditors are prohibited from accessing the assets of either single or multi-member LLCs. In Alaska, even if a creditor obtains a charging order against an LLC they cannot access the business income or assets. Basically, this makes it almost impossible to actually enforce the judgment against the business, thus adding an extra layer of protection for your Alaska LLC that you wouldn’t find in most other states.
A benefit to forming your business in Alaska is that in most states you are required to file annual reports AND pay the required fees, but Alaska only requires a Annual report from it’s LLCs and corporations so instead of filing every single year, you file every other year. This will save you paperwork and fees.
No Alaska State Income Tax
Alaska is in the minority of states in that it doesn’t collect a state income tax. For LLCs, this can be especially beneficial, because your LLC acts as a “pass-through entity” which means that the IRS does not recognize an LLC as a taxable body, and instead a business’s profits will be reported on the member or members’ personal tax records. This can be an added savings for LLC member(s) and saves them from the dreaded “double taxation” of a corporation.
Corporate Income Tax
Another reason to incorporate in Alaska is that pursuant to their corporate tax code, certain small corporations are exempt from Alaska’s corporate income tax, as long as that corporation’s total assets do not exceed $50 million. Corporations that are not exempt from this benefit are health, law, engineering, architecture, accounting, performing arts, athletics, consulting, farming, timber, banking, leasing, hotel, motel (Holiday Inn), restaurant, construction, utility, transport, or fisheries. Basically if you manufacture Tofu vegan tennis balls, you might be able to claim a tax exemption. But its good to know that your company may just fall outside of one of these categories and into Alaska’s tax exempt status.
Alaska LLC or Alaska Corporation? Our Final Answer.
For fees and tax purposes, the LLC is probably your best choice. An Alaska LLC will only get taxed once, in the form of personal income taxes for each member. An Alaska Corporation will be subject to double taxation: first through a state corporate tax, and second on the individual tax returns of shareholders. No matter what type of small business entity you have, you have to pay quarterly estimated taxes if the business owes income taxes of $1,000 or more. Corporations only have to pay quarterly estimated taxes if they expect to owe $500 or more in tax for the year. All that said, the answer to whether the Alaska LLC or the corporation is better really comes down to whether you plan to operate a small business or intend to grow your business into something much larger. If you plan to go big with your business, and can handle some additional paperwork and tedium of organizational meetings, choose a corporation. If you’re just trying to gain some limited liability protections for your small business, the LLC will fit you perfectly.
How to Incorporate in Alaska
To start a corporation in Alaska, you must file Articles of Incorporation with Alaska’s Division of Corporations. You can file the document online or by mail at a filing cost of $250. Once filed with the state, the Articles of Incorporation formally creates your Alaska corporation. As with everything in life, nothing is simple, and you’ll need to complete several additional steps before your corporation is ready to do business. If you choose Active Filings, we’ll make sure the process of incorporation is as painless and straightforward as possible.
Your Alaska Articles of Incorporation must include the following details:
Your corporation’s name must be different from other company names on record with Alaska’s Division of Corporations. To check your chosen company name against Alaska’s database, head over to Alaska’s Division of Corporations. Your corporate name must also include an identifying term or abbreviation such as “Corporation,” “Corp.,” “Incorporated,” “Inc.,” “Company,” or “Co.” Example: Acme, Inc.
How to Start an LLC in Alaska
To form your LLC in Alaska you’ll have to fill out and file your Articles of Organization with the state. They charge $250, but once you file and pay the fee, boom, you have an LLC! Here is a quick rundown of what information Alaska wants with regards to your LLC and it’s Articles of Organization.
Alaska’s Division of Corporations offers a searchable database for checking your LLC’s name against existing entities. Your company name must include some facsimile of “Limited Liability Company,” “L.L.C.,” or “LLC.” Example: Downward Dog Yoga, LLC.
Alaska Biennial Report Requirements
Most states require business entities doing business inside the state boundaries to file a yearly report. At it’s most simple, a company’s annual report is a way for the state to check the pules of the business. Has anything changed? Is the address the same? Has the LLC added or dropped a member or members? Did the corporation change addresses? Is the business still open? Things like that. Alaska asks for businesses to check in every other year, which simplifies things and gives business owners more time to prepare and file their reports. If you miss the filing date, states may penalize you financially, and eventually possibly dissolve the company, so it is very important to make sure annual report filings are on time and correct. This is why it’s important to hire a service like Active Filings. We’ll make sure you never miss a deadline, and in fact we’ll have the information ready way in advance, so you can focus more on running your business and less on talking to the state.
What information do I need when I’m filling out the biennial report?
Your business’s name and address.
Names and addresses of officers and directors (if a corporation).
Names and addresses of managers or members (if an LLC).
Name and address of your registered agent.
Type of business your company is involved in.
What is the Alaska Biennial Report?
The purpose of Alaska’s report is to keep your business records up to date with the state, which allows creditors and other interested parties to look up your business address in case they need to contact you. The IRS also uses this information to track the payment of your LLC’s taxes. Most states ask for an annual report, but Alaska saves you some paperwork and money by only requiring a report every two years.
How do I file my Biennial report?
You can file your LLC’s Biennial Report through the Business and Commercial Services Division website. You can also file your report by mail or in person.
Mail your Biennial Report to:
State of Alaska
P.O. Box 110806
Juneau, AK 99811-0806
How much does it cost to file your Biennial Report in Alaska?
LLCs and Corporations pay $100, while Foreign Corps and LLCs pay $200. Non-profits pay just $25.
When are Alaska Biennial Reports due?
Reports are due on January 2nd. Alaska provides a month grace period. If a domestic company files more than a month late, a late fee of $37.50 is added to the biennial report fee. The late fee for foreign company reports is $47.50. Nonprofits have a $5 late fee.
Alaska Business Taxes
Tell me about Alaska Business Taxes
Alaska’s corporate tax structure is broken down into ten brackets, with a low of 0% on any income less than $25,000 and a high of 9.4% on income over $221,999. Payment of your corporate income tax must be made on or before the 15th day of the fourth month after the tax year. The payment due date cannot be extended. When an estimated payment is $100,000 or greater, or a payment with a return is $150,000 or greater, payments can be made online or by a wire transfer.
In Alaska, do I also have to file an income tax return for my LLC?
Because Alaska doesn’t levy a state income tax, the member(s) of the LLC are responsible for reporting any profits or losses on their own 1040 federal tax return with the IRS.
What tax forms do I need to file for an LLC in Alaska?
By default, an LLC is taxed as a pass-through entity, where the member(s) just pay taxes on the profits of the LLC at their individual tax rates. The IRS treats one-member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the IRS. As the sole owner of your LLC, you must report all profits or losses on your Schedule C and submit it with your 1040 tax return.
An LLC doing business in the state of Alaska must file a tax return consistent with its federal tax status. If the LLC is characterized as a corporation for federal income tax purposes, the LLC must file a tax return in accordance with the instructions applicable to corporations. An LLC with corporate member(s) characterized as a partnership for federal income tax purposes, must follow the instructions applicable to partnerships.
Even though a co-owned LLC itself does not pay income taxes, it must file Form 1065 with the IRS. This form, the same one that a partnership files, is an informational return that the IRS reviews to make sure the LLC members are reporting their income correctly. The LLC must also provide each LLC member with a “Schedule K-1,” which breaks down each member’s share of the LLC’s profits and losses. In turn, each LLC member reports this profit and loss information on his or her individual Form 1040, with Schedule E attached.
What about a single-member LLC?
If you’ve set your LLC up as a sole proprietorship, fill out Schedule C as part of Form 1040 to show your LLC’s income counts towards your personal income tax returns. If your business is considered “specialty income”, then you may have to file Schedules E,F, or J instead of Schedule C.
What if my LLC has multiple members?
If your LLC is a partnership, then you will file Form 1065 and distribute a Schedule K-1 to all members, showing their portion. Each member’s specific amount will reflect the LLC’s profits and their ownership share. This amount will count towards personal income and be taxed as that rate.
What information is required on these various LLC tax return forms?
If your LLC is characterized as a partnership for federal income tax purposes, you must file Form 6900.
Form 1065 gives the IRS a snapshot of the company’s financial status for the year. The partners must report and pay taxes on their shares of income from the partnership on their tax returns. Partners must pay income tax on their earnings regardless of whether the earnings were distributed.
A Schedule K-1 is a tax document used to report the incomes, losses, and dividends of a business’s partners or an S corporation’s shareholders. The Schedule K-1 document is prepared for each individual partner and is included with the partner’s personal tax return. An S corporation reports activity on Form 1120S, while a partnership reports transactions on Form 1065.
Beyond the basic information you’ll also need:
• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
What tax form(s) does an Alaska corporation need to file?
The state tax form or forms you have to file depend on factors such as your tax election and entity type. Both C Corporations and S Corporations will file Alaska Form 6000, though S corps don’t typically pay state corporate income taxes, they are still required to file page 1 of Form 6000 and attach the first 5 pages of their federal Form 1120S.
Does Alaska have a minimum corporate income tax?
No, there is no minimum corporate income tax.
What’s the Alaska corporate tax income rate?
Alaska taxes the net income of corporations at a range of rates, from 0% to 9.4%.
$24,999 or less of taxable income 0% tax rate on net income
$25,000 to $48,999 of taxable income 2% tax on income
$49,000 to $73,999 of taxable income $480 base tax plus 3% tax on income
$74,000 to $98,999 of taxable income $1,230 base tax plus 4% tax on income
$99,000 to $123,999 of taxable income $2,230 base tax plus 5% tax on income
$124,000 to $147,999 of taxable income $3,480 base tax plus 6% tax on income
$148,000 to $172,999 of taxable income $4,920 base tax plus 7% tax on income
$173,000 to $197,999 of taxable income $6,670 base tax plus 8% tax on income
$198,000 to $221,999 of taxable income $8,670 base tax plus 9% tax on income
$222,000 or more of taxable income $10,830 base tax plus 9.4% tax on income.
What’s the personal income tax rate in Alaska?
Alaska has no personal state income tax, which is awesome, and why owning an LLC in Alaska can be beneficial, because LLCs have pass-through taxation, the income from your LLC is not taxed by the state. You save money, and saving money is good!
When are my business tax returns due?
Corporate tax returns are due within 30 days of the Federal filing deadline (which is March 15 for calendar year filers). This means that most Alaska corporations must file by April 15. However, full payment of your Alaska tax is due by the 15th day of the 3rd month following the end of the taxable year.
What if I need an extension?
With an extension, Alaska corporate returns are due within 30 days of the Federally extended deadline (which is September 15 for calendar year filers). This means that an Alaska extension will give you until October 15 to file. There is no application to request an Alaska extension. But if you owe Alaska tax, you should use the voucher on Form 6240 to remit payment. However, an extension of time to file is not an extension of time to pay. Your Alaska tax liability must be paid by the original due date to avoid penalties. You can make an Alaska extension payment using Form 6240.