A sole proprietorship is a “pass-through” tax entity, meaning profits pass directly to the business owner. The business owner, therefore, declares these profits and relevant expenses on their personal tax return. Sole proprietorship owners do not need to file business tax returns. Instead, they claim their gains and losses through their personal tax returns as a self-employed individual. Individual tax rates in West Virginia range from 3-6.5%.

Partnerships are not subject to income tax in West Virginia or at the federal level but may pay tax at the entity level. Profits from partnerships pass through to the partners, who then declare these profits and losses on their personal income returns. This is similar to a sole proprietorship, except that partners divide their profits and losses. If a partnership chooses to be taxed at the entity level, it experiences the same general tax implications as a corporation. 

Corporations are taxed at the entity level, unlike sole proprietorships and some partnerships. The corporation pays taxes to the state and federal government, declaring its profits and losses on a separate tax return. Corporations distribute dividends to shareholders, and these shareholders pay additional tax on this income in a process known as “double taxation.” For 2023 earnings, West Virginia taxes corporations at 6.5%, while the federal government levies a different corporate tax rate of 21% – leading to a total corporate tax rate of 27.5%.

Like partnerships, LLCs offer their owners a degree of flexibility regarding taxation. LLCs may take the form of pass-through entities (like sole proprietorships), or they may be taxed at the entity level (like corporations). If LLC owners choose the latter option, they must file Form 8832 with the IRS and formally request to be taxed as a C-corporation.