In Georgia, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business may, in some cases, decide whether you or your business pays income taxes on the business income.

Corporations. All C corporations are required to pay an annual corporate tax of 6 percent on the amount of income that was generated in Georgia. Any income generated outside of Georgia will be subtracted out of net income for purposes of calculating Georgia corporate income taxes.

S corporations. If you meet the federal tax law requirements to operate as an S corporation, the IRS allows your business to "pass through" its income to the shareholders. This means that your business will not pay any IRS corporate level income tax. However, you'll have to claim your entire share of the business income on your personal federal income tax return even if you did not take any money out of the business.

In Georgia, the law extends this favorable tax treatment to state corporate income tax liability and S corporations will not be subject to the corporate income tax. However, your S corporation will be required to withhold personal income tax on amounts paid to nonresident shareholders.

Partnerships. If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their Georgia taxable adjusted gross income their distributive share of partnership income. Additionally, your partnership will be required to withhold personal income tax on amounts paid to nonresident partners.

Limited liability companies (LLCs). Georgia law recognizes businesses operating as limited liability companies (LLCs). As an LLC, you will be treated, for tax purposes, exactly like a partnership if you are classified as a partnership for federal income tax purposes. Accordingly, your LLC will not be taxed on its net income. Instead, members must include in their Georgia taxable adjusted gross income their distributive share of LLC income. Additionally, your LLC will be required to withhold personal income tax on amounts paid to nonresidents.