A new reason for some businesses to form a corporation or LLC.  For many years, people starting businesses have chosen to either incorporate or form a limited liability company (LLC) in order to shield their personal assets from liability for business debts.  Others have simply operated as sole proprietorships.  Now businesses operating in the construction industry have a brand new reason to form a corporation or LLC:  to avoid automatic Minnesota income tax withholding.

Beginning in 2009, a construction contractor who makes payments to an individual construction contractor carrying on a trade or business as a sole proprietorship must deduct and withhold 2 percent (.02) of the payment(s) as Minnesota income tax withholding. Payments are subject to 2 percent withholding only if the work was performed in the state of Minnesota and the total payments during the year exceed $600.

This will affect many small businesses operating in the construction industry.  For more information, go the the Minnesota Department of Revenue's website here.


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