Costs to Start a Business in Vermont

There are several types of business structures you can choose from when forming your business. Which is best for your business depends on a variety of factors, like ownership in the business, taxation, and more.

No State Filing: There are two types of structures which can be automatically formed without any filing with the state. Sole proprietorship and general partnership falls into this category, and they are a popular form of self-employment.

Formed or Incorporated: Three most common business entities that require some formation or incorporation with the state are corporation, limited liability partnership (LLP), and limited liability company (LLC). Each structure has its own one-time formation or set-up cost.

Across all US states, the average cost of formation is roughly $100 with some states costing as little as ~$50 to create a corporation and some as high as $500+ to form an LLC.

Here are the formation costs (up to date at the time of this writing) for three most common entity types for businesses filed with the state:

Franchise taxes are state fees that businesses pay in order to have the right to operate in those states. They are paid in addition to state and federal income taxes. Failure to file can cause a business to lose its good standing with the state, making it difficult to operate, get loans, and may cost the business clients if clients require this information.

Here are the franchise tax fees for each business entity structure in this state as of the time of this writing.  

Taxes, taxes, and more taxes. Although income taxes may seem far off concern when starting a business, the truth is that not withholding enough for income taxes is a material cost to business owners. Here we briefly cover state income taxes. For a better overview of self-employment taxes, you can read more on Small Business Tax Planning.

‍Pass-Through Entities: Pass-through entities are boon to small business owners. A pass-through entity is a business structure where income passes directly to the owners or investors, and they report it on their personal tax returns. This allows the business to avoid paying corporate taxes, making it a more tax-efficient option for small businesses. This also makes filing taxes significantly simpler as only one return is needed.

By default, sole proprietorships, LLCs, and partnerships are considered pass-through entities. In the case of LLCs, LLCs are usually referred to as disregarded entities. However, owners can choose to get their LLC be recognized and treated differently for tax purposes with the IRS.

Corporate Income Tax: Most states (44 out of 50) levy a corporate income tax.
C-Corps pay a C-Corp state income tax rate. If the income tax is pass-through, as with S-Corps, use your personal income tax rate.

Limited Liability Companies: For LLCs, the tax rate depends on the how you set up the LLC business structure.

• Multi-member LLC: treated as a partnership (pass-through). Each person pays personal income tax based on their share of the LLC's income and their own personal income tax rate.
• LLCs as S-Corps: if the LLC elects to be taxed as an S-Corp (pass-through), the LLC is taxed at the personal income tax rate.
• LLCs as C-Corps: if the LLC elects to be taxed as a C-Corp, the LLC is taxed at the C-corp income tax rate.

If you're considering hiring employees for in-person work, then knowing your state's employment laws are important.

One important to factor is knowing the local minimum wage, which varies depending on state and sometimes even by city or county. Note that in addition to the hourly rate, employers should also consider payroll taxes, workers’ compensation insurance, and potential benefits costs.

Here we just provide a review in the table below costs specific to the state, namely the state's specific minimum wage, any applicable exceptions to the minimum wage, and recurring payroll taxes.

Additional Information

The idea of starting a business can be exciting, but the plethora of choices, jargon, and costs associated with the pure act of setting up a business with the state can be an unnecessarily daunting and time-consuming process.

Although this guide can't setup your business entity for you, it provides an overview so you can get a head start. We hope this article has sheds light on the essential costs involved and provides guidance on how to manage them effectively, setting you on a path towards entrepreneurial success.