2024-10379-interactive-what small businesses

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The journey to success is different for every small business, but good tax habits are a smart move wherever you are. In communities across the country, Block Advisors offers expertise for small businesses of all kinds and sizes.

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What small businesses should know about filing taxes this year

By Cemile Kavountzis, for Block Advisors

Even with taxes on both business and individual income, some states are still advantageous overall: North Carolina, for example, has a low corporate rate, and Michigan has low individual, property and unemployment tax rates. “Other states, such as Delaware and Indiana, are favorable because their court system and regulatory environment are friendly to businesses."

Stay on top of your income and expenses

Worried about inflation? “The No. 1 thing is staying on top of your income and expenses,” said Flores. If you need to raise the price of your goods and services, be confident in the value you offer. Charge what you’re worth.

Small businesses should look at if they need to adjust prices or cut costs."

Find your Tax Pro

Block Advisors tax pros are here to help grow your bottom line and put money back in your pocket by finding every available credit and deduction. Get expert tax prep for your small business, in-person or virtually. Visit: blockadvisors.com

This year, many small businesses and gig workers will face new and increased reporting requirements for transactions through payment apps and crypto marketplaces. “More businesses will receive 1099-K for the first time this year,” Flores said. “It increases the complexity and highlights the need for complete and accurate bookkeeping records for small businesses.” Flores’ advice? “Thorough books and records help streamline the tax filing process and ensure the business reports income accurately and maximizes deductions.”

What to know about the new 1099-K regulations

Location, location, location, What small business owners should know about tax laws across the nation

Click on a state for local tax insights

Wyoming

In Wyoming, there’s no state-level income tax, so small businesses don’t need to withhold state income taxes from their employees’ paychecks. But they do need to withhold federal income tax for those employees. One noteworthy change: The state’s unemployment insurance tax wage base increased from $29,100 to $30,900 in 2024.

If you operate a corporation or business taxed as an S-corporation in Wisconsin, there is a privilege tax — or what is known as an economic development surcharge (EDS). In sum, any business with gross receipts of $4 million or more must pay it.

Wisconsin

Still growing your business? One thing to keep in mind when you’re just starting out and perhaps not making a profit, you may still need to submit a return. Even if your business doesn’t make any money in a given year, you may still have to file a “zero return.”

West Virginia

Washington has no corporate income tax or personal income tax. This means that whatever Washington small business taxes that you pay won’t include taxes on your income. You may, however, be liable for other types of taxes.

Washington

Just starting out? Beginning in July 2024, all new businesses must register with Virginia Tax electronically. You can do this online and at the same time, register with the Virginia Employment Commission (VEC), if you plan to hire employees. This will help you stay on top of unemployment tax.

Virginia

Quarterly estimated tax payments are part of small-business clockwork: A corporation with a Vermont tax liability over $500 must pay estimated tax payments on the 15th day of the fourth, sixth, ninth and 12th months of the year.

Vermont

The state motto, “Industry,” aligns with the Beehive State’s aim to be a hive for small businesses. The individual and corporate income tax rate has been steadily declining from 4.85% to 4.65% in 2023 and now 4.55% in 2024. However, there is a $100 corporate income tax minimum, no matter what.

Utah

The Lone Star State is among the few states that don’t have a standard corporate income tax. Instead, gross receipts from a business are taxed under a franchise tax. However, it’s still a good deal for small businesses because only businesses with gross receipts in excess of $2,470,000 are required to file and pay the franchise tax.

Texas

Want to simplify your paperwork? Consider Tennessee. In most states, if you have employees, you’ll need to take out withholding taxes from their paychecks. These taxes are paid to the state on a quarterly basis. However, in Tennessee, there is no state income tax on earned income and therefore, no income tax withholding requirements.

Tennessee

Setting up shop in this booming state? If your small business sells tangible property or services, you’ll need to apply for a sales and use license, which allows you to collect 4.2% sales tax. You’ll send the sales tax you collect to the state’s Department of Revenue.

South Dakota

For pass-through businesses, South Carolina offers an alternative income tax method. The owners can elect for the business to pay a 3% tax for active trade or business income. When choosing this route, owners can exclude the business income from their return.

South Carolina

Good news for Main Street: To help out small businesses in 2024, Rhode Island now has a $50,000 exemption for tangible personal property tax.

Rhode Island

Things are turning around in the Keystone State, once home to the second highest corporate income tax rate in the country for C corporations, it’s now getting more competitive. Starting Jan. 1, 2024, the corporate net income tax rate dropped from 8.99% to 8.49%. It will continue to decrease 0.5 percentage points each subsequent year until it reaches 4.99% by 2031.

Pennslyvania

For businesses set up as a C or S-corp or an LLC taxed as a corporation, you’ll have to pay a corporate excise tax. It breaks down to 6.6% on taxable income of $1 million or less, and 7.6% for taxable income above $1 million.

Oregon

Thinking about expanding your team? The Sooner State has some attractive tax incentives for small businesses that create well-paid, full-time jobs: You can receive cash payments of up to 5% of payroll from newly created jobs for up to 10 years.

Oklahoma

Your small business may have benefitted from Ohio’s 10-day sales tax holiday at the beginning of August 2024. Unlike in prior years, the sales tax holiday included business-to-business sales.

Ohio

Every corporation that engages in business or generates income in North Dakota must file a North Dakota corporation income tax return and pay the appropriate tax. The state’s business tax rate for corporations is 1.41% to 4.31%.

North Dakota

Hiring a team? Get the necessary paperwork in order: North Carolina requires employers to withhold state income taxes from employee payroll. All employers must complete Form NC-BR to obtain a North Carolina withholding identification number.

North Carolina

New York small businesses are required to withhold and deposit employment taxes. These are personal income taxes on wages, salaries, bonuses, commissions and other similar income paid to employees. The withholding tax percentage is a range from 4% to 12.84% of the qualified income, with a supplemental withholding rate of 11.7% for bonuses and commissions.

New York

Depending on the net income of a small business, the current corporate tax rate in New Mexico is either 4.8% or 5.9%. However, there may be other taxes your business will have to pay as well. Additionally, S corps, partnerships and sole proprietorships are taxed at the individual rate.

New Mexico

Choosing the right tax forms for your small business in the Garden State can be confusing. A sole proprietorship will need Form NJ-1040 and Schedule NJ-BUS-1, a multi-member LLC taxed as a partnership should use Form NJ-1065 and a Schedule NJK-1, and an S-corp will need Form CBT-100S and a Schedule NJK-1.

New Jersey

You’ll need to get to know your acronyms: Small businesses in New Hampshire pay a business enterprise tax (BET) and a business profits tax (BPT). The BET is a tax on business income, while the BPT is a tax on the enterprise value tax base.

New Hampshire

The Silver State is rarity for not having a corporate income tax, but this doesn’t mean that you can operate totally tax-free. Instead, qualifying small businesses are liable for a commerce tax on gross receipts more than $4,000,000 per year.

Nevada

Planning on opening a shop? Set a reminder because sales and use taxes are typically due on the 20th of each month for the month before. Along with state sales tax of 5.5%, businesses might also be subject to sales and use taxes at the local level as well.

Nebraska

When it comes to state lines, some C corporations that operate in another state and only have sales in Montana don’t have to pay the normal 6.75% corporate income tax. If they don’t rent or own real estate in Montana (and their gross sales within the state don’t exceed $100,000), these entities can elect to pay a tax of 0.5% on gross sales.

Montana

In the Show-Me State, the withholding rate for employees depends on how much and how often each employee gets paid. The Missouri Works program allows qualified small businesses to retain employees’ Missouri withholding taxes on wages to offset their state tax liability. A tax pro can help you leverage these tax credits.

Missouri

Even if you don’t run a franchise, all small businesses in Mississippi must pay a franchise tax for the privilege of doing business in the Magnolia State. To roughly figure out what you owe for 2024: It’s at least $25, or $1 per $1,000 of the value of the capital employed, in excess of $100,000.

Mississippi

Small businesses in Minnesota now face some of the steepest taxes in the nation. It currently has the highest corporate tax rate in the nation at 9.8%. For those shouldering a hefty tax burden, working with a tax expert is a smart move.

Minnesota

If you’re a one-person operation in Michigan, state income tax rate for sole proprietorships and single-member LLCs is up 4.25% in 2024 from 4.05% the previous year. Michigan is fostering growing companies with research and development tax credits beginning tax year 2025. Small businesses with less than 250 employees can claim up to $250,000 per taxpayer or business.

Michigan

Whether you’re running a brick-and-mortar store, a market stall or an online shop, small businesses in Massachusetts are required to pay a sales tax of 6.25%. Along with your state tax responsibilities this year, you’ll also be getting a Form 1099-K if you had over $600 in transactions.

Massachusetts

In Maryland, the small business tax rate for corporations is 8.25% of taxable income. If you own a shop or sell goods, sales tax is 6%, but state legislation has expanded sales tax to certain services. Like many small businesses, you may be navigating new tax territory.

Maryland

If a new small business in Maine has employees, they must pay an unemployment tax of 2.41%, which helps fund unemployment compensation for eligible workers. That rate will be adjusted over time as the employer consistently makes payments.

Maine

Recent changes to the tax code include: a new corporate flat tax rate of 5.5% instead of a graduated income tax, the elimination of the corporate franchise tax beginning in 2026 and an increase in the combined sales tax rate to 5%.

Louisiana

Businesses that provide limited liability to their owners in Kentucky are subjected to a limited liability entity tax. If you created one new job or bought at least $5,000 in qualifying equipment or tech, you can get between $3.5K-$25K through the Kentucky Small Business Tax Credit program.

Kentucky

Kansas has a 3.5% corporate income tax rate with an additional tax of 3% for corporations with an income over $50,000. You’ll also want to familiarize yourself with Form K-120S and Form K-120AS, which many are required to submit.

Kansas

Some cities and counties in Iowa have a 1% local option tax. Starting January 2025, the state has implemented a 3.8% flat individual income tax rate. The change means many small businesses will have more financial flexibility to grow and invest in their future.

Iowa

The Hoosier State is considered among the best states for starting a small business thanks to its favorable tax outlook. It has a flat-rate corporate income tax of 4.9%. Additionally, the state sales tax is 7% and there is no local sales tax beyond that.

Indiana

Small businesses in Illinois, including S-corps, partnerships, standard LLCs and sole proprietorships, don’t have to pay state business income tax. However, if you’re a C-corp or an LLC with C-corp elections (which tend to be larger enterprises), you’ll be responsible for the 7% business income tax rate.

Illinois

Idaho keeps it super simple for small business with a flat corporate income tax rate of 5.695% as of 2024 for both S-corps and C-corps. Operate a small farming business in Idaho? You don’t need to pay sales tax on equipment used to store small grain or other supplies used to prepare a crop for storage.

Idaho

Wonder what’s on the other side of the tax rainbow? The corporate tax rate for businesses in Hawaii ranges between 4.4% to 6.4%. Hawaii has made important changes to how pass-through entities (PTE) pay taxes and operate locally. Among the changes, an amended tax rate of 9% took effect in June 2024.

Hawaii

For C corporations, the corporate tax rate is 5.39% of a corporation’s taxable net income made in Georgia. Partnerships, S corporations and sole proprietorships pay tax at a flat rate of 5.39%.

Georgia

If you’re thinking about opening a business somewhere sunny: Florida is among the most small-business-friendly states in the nation: S-corps, LLCs, partnerships and sole proprietorships don’t pay state income tax. C corporations are subjected to a rate of 5.5% on their adjusted federal income.

Florida

The corporate rate is 8.7%. Owners of pass-through entities, such as partnerships, S corporations or sole proprietors, pay tax at the individual rate on their share of business income which ranges from 2.2% to 6.6%.

Delaware

The business tax rate for corporations in Connecticut is 7.5%. Small businesses have seen a few big wins in Connecticut like the elimination of the business entity tax in 2018. Most recently, pass-through entity tax became optional starting Jan. 1, 2024. To do this, a business must provide a written notice each tax year.

Connecticut

Corporate income taxes for C corporations in Colorado is 4.25%. Startups are getting a boost with Colorado’s drive to innovate: The Advanced Industry Investment Tax Credit helps businesses that have received up to $10 million in third-party investment and that generate up to $5 million in annual revenue.

Colorado

Any net income made by a C corporation in the Golden State is subject to the corporate income tax rate of 8.84%. In unprecedented circumstances, tax deadlines can change: California will provide tax relief and extensions to small businesses impacted by the L.A. wildfires.

California

LLCs and corporations in Arkansas are required to pay a franchise tax for doing business within the state. Small businesses get big breaks in “the Land of Opportunity” with recent tax changes that dropped the maximum individual income tax rate to 3.9% for 2024. The corporate maximum is 4.3%.

Arkansas

Certain small businesses in the Grand Canyon State are required to pay a transaction privilege tax, which has a state level rate of 5.6%, plus the county and city level tax. Small businesses in the Grand Canyon State employ over 42% of the state’s workforce and make up over 99% of businesses.

Arizona

It’s not called the Last Frontier for nothing: Alaska is among a handful of states where residents don’t pay personal income tax. This means businesses don’t have to withhold state income taxes from employee wages.

Alaska

Depending on what they do, small businesses in this Southern state may be responsible for sales taxes, unemployment taxes and excise taxes. After dropping the minimum business privilege tax from $100 to $50 in 2023, Alabama eliminated the minimum tax in 2024.

Alabama

Discuss your options with a pro

“Sometimes you can save money, for example, by being an S-corporation rather than a self-employed Schedule C filer,” said Flores.

Taxes are the one thing that we love to talk about, and there are tax consequences of forming an entity which can be helpful.”

Use tools that work for you

Some people keep only digital records, while others maintain paper receipts. There are apps that can help you stay organized and up-to-date on expenses.

We have clients running successful businesses entirely from smartphones."

Separate business and personal accounts

"Be sure to set up a business account that’s separate from your personal account,” said Flores, especially when using P2P platforms to send or receive payments. Business meals with clients may be deductible but splitting a happy hour tab with a friend isn’t.

You want to be clear on if this is business income or reimbursing my friend for some other cost."

Know what records you should be keeping

It’s important to know exactly what you should be tracking throughout the year, from mileage to office supplies.

Trying to reconstruct expenses at the end of the year can be painful."

Plan for quarterly payments

"A lot of things happen naturally quarterly in business — and taxes are no different,” said Carl Breedlove, lead tax research analyst for H&R Block. To stay on top of things, a quarterly meeting with your tax advisor is always recommended.

You have estimated payments and payroll tax deposits, among other things that happen on a fairly regular basis."

Check in with your tax advisor regularly

"You can review these with the team at Block Advisors to check in on how your business is doing and understand how you could save money on taxes or make business decisions in a way that maximizes tax savings,” Flores said.

You want to keep really good track of your profit and loss statements."

Running a small business or being self-employed has many perks, from chasing your dreams to being your own boss. But it also takes a lot of hard work, determination and tackling a constant to-do list. On top of all that, filing your taxes is its own beast. “Regulatory requirements at the federal and state levels continue to change, and business owners are having to devote a growing amount of time to keeping current,” said Alison Flores, manager with the Tax Institute at H&R Block. This makes finding the best strategy for your situation even more important. If you’re looking for expert tips on how to navigate new regulations, inflation and other tax season questions, read on.

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In the nation’s capital, S corporations are not taxed as corporations. They’re considered pass-through entities, along with most limited liability companies, partnerships and sole proprietorships. If an unincorporated small business’ gross receipts are less than $1 million, you’re liable for $250 minimum tax, and if over $1 million, the minimum tax is $1,000.

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District of Columbia

Source 1

Starting in 2024, the threshold for payment apps and online marketplaces will include payments over $5,000, regardless of the number of transactions.

Small business owners and gig workers often need to file federal, state and local taxes. Since tax rules vary by state, there are unique benefits to explore. “The most favorable states are those that don’t tax business income or individual income — South Dakota and Wyoming,” said Flores. Even with taxes on both business and individual income, some states are still advantageous overall: North Carolina, for example, has a low corporate rate, and Michigan has low individual, property and unemployment tax rates. “Other states, such as Delaware and Indiana, are favorable because their court system and regulatory environment are friendly to businesses."