When running your small business it is important to stay in compliance with laws at all levels. This includes federal, state, and county levels. Small business taxes and tax laws can and do change from time to time. Therefore, it is necessary to stay up-to-date on all of the requirements.
This article will cover the basics of small business taxes. We will go over how business taxes affect you and important factors to consider when filing. We will also go over laws by individual states in order to help you understand your taxes a little better.
Why Is It Important for Small Business Owners to Manage their Taxes?
Just like individual taxpayers, there are consequences if you don’t manage your taxes. Business owners that fail to pay attention to their tax obligations can see even more unpleasant consequences. For starters, the Internal Revenue Service can charge you with penalty fees as well as interest. Even if it is an honest mistake, you can also be subject to an audit if you fail to file or pay your taxes. Depending on the state, you risk facing an audit going back to the date you started the business.
Failing to manage your taxes can result in even harsher penalties. If you refuse to file or pay your taxes with the intention of defrauding the state, you may face liens on your property. Those that continue to refuse to file and pay taxes may face potential criminal charges as well as jail time.
Managing Your Taxes by Business Structure
If you formed your small business as a sole proprietor, you will use the same form to file your personal and business taxes. You will file your small business taxes separate from your personal taxes if you formed the business as an LLC or Corporation. These filing methods are universal across all of the states. The laws that will be unique by states include unemployment taxes, tax rates, worker’s compensation taxes, and temporary disability taxes.
Individual State Laws Relating to Small Business Taxes
You must pay income, unemployment, workers compensation, payroll, and use tax in every state. Below is important information for each state.
Small businesses must file after the fourth quarter of every year. You may also have to pay taxes for lodging or rental services. Nursing home providers, pharmaceutical providers, and cell phone providers also pay service taxes. If you have more than five employees you will pay unemployment and worker compensation taxes.
You must pay income taxes unless your organization is non-profit. You are also responsible for unemployment and workers compensation taxes even if you only have one employee. If you manage a non-profit and have more than four employees, you must pay UI and workers compensation taxes.
You must keep employment tax records for four years. The filing date is after the fourth quarter every year.
You may be responsible for luxury taxes as well as alcohol and tobacco taxes.
If you are in California, you are required to pay income, unemployment, workers compensation, and temporary disability taxes.
Taxes you may pay include fuel, alcohol, cigarettes, or marijuana.
In addition to income, unemployment, and workers compensation taxes, you may also pay a franchise tax. Other taxes may include fuel and use of roads.
Delaware is the 8th most friendly state for businesses and is considering using their surplus to reduce tax rates.
The minimum tax for the District of Columbia is $250.
You may file your business taxes online in Florida.
If you have fewer than 50 employees, you may qualify for a $250 credit per individual. Small businesses make up 97% of the businesses in Georgia.
The first $40,000 of income is exempt from business taxes.
In addition to income, unemployment, and workers compensation taxes, you will also pay temporary disability taxes.
Other taxes you may pay include alcohol, mine, tobacco, and entertainment.
Small businesses in Illinois will find a large amount of support in the business-friendly climate.
The strongest sectors in Indiana are life sciences and technology. The state is also investing in small businesses by offering tax credits.
Iowa has proposed a flat tax that is half of the current rate. They are also offering a reduced or even eliminated corporate tax as well as a 50% deduction of federal taxes.
Kansas offers a sales-tax exemption as well as a capital investment tax credit of 10%.
Kentucky offers a credit to small businesses investing at least $5,000 in certain technology. If you are in manufacturing, you may qualify for a credit on income taxes. This credit is available for up to 10 years.
Your state income taxes will vary based on your location in Louisiana.
Maine is making a strong bid to attract small businesses. They offer tax reimbursements as well as the possibility of eliminating sales taxes to eligible businesses.
If you are moving into Maryland from another state, you may be eligible for a tax credit up to $500,000. There is also a start-up tax credit as well.
Massachusetts has recently reduced the corporate tax rate. They also offer a 3% credit on qualifying capital investments.
Michigan is not known as a very tax-friendly state. They do offer some credits to small businesses.
Minnesota offers an online portal to help small businesses get started and register for taxes.
Mississippi offers an online portal to file and pay taxes. They also offer an ad-valorem tax credit.
Missouri is known for being a tax-friendly environment for small businesses. They offer start-up credits as well as credits in technology sectors.
Montana features a small-business friendly environment as well as credits and tax incentives for new businesses. The state also has a surplus, which means taxes may potentially be reduced.
Nebraska offers tax credits up to $4,000 for new jobs that owners create. They also offer a 20% tax credit if your business has fewer than five employees at start-up.
If you run a business in Nevada, you will pay standard taxes. There are no special incentives for this state.
New Hampshire does not require any sales or income tax. They also offer a very low corporate tax rate, making the state very business-friendly.
In New Jersey, there is a requirement for businesses to pay temporary disability taxes as well as standard income and unemployment taxes.
There are no special tax incentives for New Mexico.
You will pay temporary disability taxes. You may also pay taxi, alcohol, and tobacco taxes.
The state of North Carolina does not offer any special tax incentives for small businesses at this time.
Over the past four years, North Dakota has cut business taxes by 20% in order to be more business-friendly.
If you have at least 25 employees making 150% of the minimum wage, you are eligible for tax credits. You are also eligible for credits when you make capital investments.
Puerto Rico requires you to pay temporary disability insurance tax.
The smallest state requires temporary disability tax in addition to standard taxes.
There are no credits or exemptions covering small business taxes at this time.
Small business taxes in South Dakota are very low, as you will not pay corporate income taxes or inventory taxes.
Tennessee offers several tax credits for businesses with at least 25 employees. Some of these credits are worth up to 100% of your sales and income taxes.
Texas offers small businesses exemptions and credits for sales, income, and property taxes.
U.S. Virgin Islands
Well-known for being a “tax haven”, the U.S. Virgin Islands offer small businesses many tax credits and exemptions worth up to 90%.
Small businesses moving to Utah may be eligible for tax credits for job creation as well as credits on unemployment insurance. You may also be eligible for tax credits in capital investments.
Vermont offers a tax credit for small businesses that pay at least half of their employee’s health insurance costs.
Small business taxes in Virginia can be offset by credits for green job creation, worker retraining, and recycling old equipment.
In addition to standard taxes, you may also be taxed for rental cars, tobacco, and public utilities.
Small businesses are eligible for credits when investing in capital equipment and creating manufacturing jobs.
Wisconsin offers small businesses tax credits for job creation as well as capital equipment investments.
Wyoming is known for having minimum small business taxes. Even so, 87% of small businesses qualify for exemptions. This state is very business-friendly as a result.
If you are a small business owner, let us know what small business taxes you like or dislike. Leave a comment below, or send us a message on social media. We look forward to hearing from you as you share your knowledge with others.
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