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7 strategies for succeeding as a small business right now
The journey to success is different for every small business. Having good tax habits is a smart move wherever you are. In communities around the country, Block Advisors has expertise for small businesses of all kinds and sizes.
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What to know about filing small business taxes this year
By Cemile Kavountzis, for Block Advisors
Whether you’re a growing microbusiness of one or a well-loved shop in your community, more and more people are making their big dreams happen with small businesses. There are more than 30 million small businesses across the nation — and growing.
Making the leap to owning a small business is a big step, but with it, comes new territory. With tax season approaching, many small business owners — or SBOs, for short — may be wondering how local tax laws, inflation and the end of pandemic measures will impact them.
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Fastest-growing cities for small businesses and entrepreneurs
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Many small businesses and entrepreneurs have shifted their focus from the nation’s biggest metropolises to smaller cities and towns. With an uptick in people moving to the South and the West, according to the U.S. Census Bureau , new locales have cropped up as the most exciting places to start a business and build your future. If you started a business in a new place, it’s one more reason that understanding local tax laws is more crucial than ever before.
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Based on an increase in annual business applications, per U.S. census data
Stay on top of your income and expenses
Worried about inflation? “The number one 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 proud of the value, she said. Charge what you’re actually worth.
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.
Plan for quarterly payments
“A lot of things happen naturally quarterly in business — and taxes are no different,” said Breedlove. To stay on top of things, a quarterly meeting with your tax advisor is always advised.
Know what records you should be keeping
It’s important for small businesses to know exactly what kinds of items they should be keeping track of throughout the year, from mileage to office supplies.
Separate business & personal accounts
“Be sure to set up a business account that's separate from your personal account,” said Flores, especially when you’re using P2P platforms to send or receive payments. That business lunch with a client may be deductible, but splitting a happy hour tab with a pal isn’t.
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.
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.
Albuquerque,
New Mexico
Old meets new in ABQ, a desert crossroads where an emerging economy has attracted some major players in recent years, from streaming services to cybersecurity.
Some growing industries include :
Atlanta,
Georgia
Things are quite peachy for small businesses in Georgia’s bustling capital city. It has been ranked as the top metro area for the lowest cost of doing business, while incubators and accelerators are fueling a startup community.
Atlanta fosters the following initiatives :
Charlotte,
North Carolina
The state’s business-friendly tax climate and business survival rate have made this North Carolina city a top pick for striking out on your own. Dubbed “Queen City,” for its royal naming after Queen Charlotte.
Some booming areas & industries include :
Columbia,
South Carolina
The Palmetto State is one of the most hospitable states in the South for new ventures and local resources.
Some resources of Columbia include :
Houston,
Texas
In the Houston metro area, 82% of businesses have fewer than 20 employees and 97% of businesses in the region have fewer than 500 employees. Among those, nearly 35% of small businesses with 50 or fewer employees are minority-owned.
The city also provides innovative partnerships to help SBOs gain funding.
Indianapolis,
Indiana
Low cost of living and high quality of life have long attracted residents to this Midwest city. “Indy” has its fast-paced side with its well-known racing circuit, but there are plenty of quiet places to hike and bike.
To support SBOs, the city has even developed an online tool to simplify the processes of opening a new business.
Sacramento,
California
In “the City of Trees” — and California’s state capital, for that matter — small businesses have taken root and are celebrated for being innovative, flexible and strongly tied to the community.
To encourage innovators and entrepreneurs, the city extends help in the following ways :
Miami,
Florida
With a diverse economy and low taxes, this beachfront metropolis has upped its entrepreneurial game, including a burgeoning IT sector. From artisan, fair-trade chocolatiers to funky design store, Miami has it all.
Some benefits to Miami include :
Wilmington,
Delaware
Some of the biggest businesses on the planet are incorporated in the second smallest state to avoid paying corporate income tax, but there are plenty of reasons to set up shop locally.
Some growing industries include :
Albuquerque,
New Mexico
Atlanta,
Georgia
Columbia,
South Carolina
Charlotte,
North Carolina
Houston,
Texas
Indianapolis,
Indiana
Sacramento,
California
Miami,
Florida
Wilmington,
Delaware
Small businesses should look at if they need to adjust prices or cut costs.
You want to keep really good track of your profit and loss statements.
You have estimated payments and payroll tax deposits, among other things that happen on a fairly regular basis
Trying to reconstruct expenses at the end of the year can be painful.
You want to be clear on if this is business income or reimbursing my friend for some other cost.
We have clients running successful businesses entirely from smartphones.
Taxes are the one thing that we love to talk about, and there are tax consequences of forming an entity which can be helpful.
Smart Community Technology
Space Research
Film and Digital Media
Storefront Redesign
Atlanta Main Street Programs
Uptown
NoDa
Plaza Midwood
One-of-a-kind Shops
Favorable Tax Laws
Mentorship Programs
Local Workshops
Lessons in Applying for Loans
Connecting SBOs with Economic Development Professionals
Ideal Location for Small Companies with a Global Vision
Thriving Atmosphere for Art and Culture
Dining and Nightlife
Local Business Costs are Low
No Sales Tax
Well-connected Co-working Spaces
Real Estate to Lease or Buy
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Find Your Block Advisor
Whether you’re a team of 1 or 10, our Block Advisors are here to help, visit blockadvisors.com
With Block Advisors, you can start the process of forming your business in minutes. Click here to learn more on business formation and entity types.
Even though this tax season will be the most “normal” in recent years with regard to deadlines and payments, small businesses will still face challenges. Below are some factors that may impact SBOs and their returns.
The biggest factors weighing on small businesses
Back to beginning
Unless you apply for an extension, you will be required to file your taxes on the set deadlines: For federal returns, individual income tax returns are due April 18, 2023, while calendar year partnership and S-corporation returns are due March 15, 2023.
Regular tax deadlines are back
Next
Peer-to-peer payment (P2P) platforms, such as PayPal and Venmo, have become mainstays of everyday small business transactions. With mobile payments as the new normal, SBOs may be curious about what they need to know about using these apps and how they impact their taxes.
The rise of mobile payments
Next
“The salary deduction will increase their taxes. Some states like Maine and New Hampshire have cut unemployment taxes.”
As those wages increase, employers will get a tax benefit
Hiring and retaining employees has been tough for small businesses, and some states have raised the minimum wage.
Increases in minimum wage
Next
Likewise, some loans and grants that businesses may have relied on to stay afloat and smooth out disruptions during the pandemic are no longer available.
Some of the special credits that were brought forth under COVID for businesses have ended.
End to pandemic support
Next
Tax brackets are adjusted for inflation, but there is a lag because it’s based on the prior year.
Inflation has been a rising concern for small businesses, but there is some good news. “A lot of things in the tax world adjust for inflation,” said Alison Flores, a research analyst at the H&R Block Tax Institute.
Inflation
Click next for more factors
All states with N/A are subject to federal minimum wage which is 7.25 Many states have localities that require slightly higher wage rates. Some states have higher minimum wage rate for larger employers and a smaller rate for small employers.
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There’s no state-level income tax, so small businesses don’t need to withhold state taxes from their employees’ paychecks. But, they do need to withhold federal income tax for those employees.
Source
$7.25
Minimum Wage :
Wyoming
If you’re conduction business in Wisconsin, there is a privilege tax — or what is known as an economic development surcharge (EDS). In sum, any business with gross receipts over $4,000,000 must pay it.
Source
$7.25
Minimum Wage :
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.”
Source
$8.75
Minimum Wage :
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.
Source
$15.74
Minimum Wage :
Washington
However, most locations in Virginia impose a 5.3% sales tax rate. Regardless of the location, there’s a reduced rate of 1% for sale of food for home consumption (think grocery items) and some personal hygiene products.
Source
$12.00
Minimum Wage :
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 last months of the year.
Source
$13.18
Minimum Wage :
Vermont
Sales tax happens before customers buy in Utah, where excise taxes only apply to specific industries and goods, such as tobacco, alcohol and fuel. This flat per-unit tax is paid directly to the state by the business before the goods can be sold to the end consumer.
Source
$7.25
Minimum Wage :
Utah
The Lone Star State isn’t alone in having no corporate income tax, but it 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 $1,230,000 are required to file and pay the franchise tax.
Source
$7.25
Minimum Wage :
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 state withholding requirements.
Source
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N/A
Minimum Wage :
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 4.5% sales tax. You’ll send the sales tax you collect to the state’s Department of Revenue.
Source
$10.80
Minimum Wage :
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.
Source
*
N/A
Minimum Wage :
South Carolina
For C corporations, the Rhode Island business tax rate for net income is 7%. State income tax returns for C corporations are due the same time federal income tax returns are due for C corporations.
Source
$13.00
Minimum Wage :
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, 2023, the corporate net income tax rate is dropping from 9.99% to 8.99%. It will continue to decrease 0.5 percentage points each subsequent year until it reaches 4.99% by 2031.
$7.25
Minimum Wage :
Pennsylvania
The million marker: Since 2021, the Oregon corporate tax rate is 6.6% on taxable income of $1 million or less, and 7.6% for taxable income above $1 million.
Source
$13.50
Minimum Wage :
Oregon
If you’re doing business in the Sooners State as a corporation, you must file an Oklahoma income tax return and pay corporate income tax. In 2022, the corporate income tax rate dropped to 4% from 6% in 2021. Instead of a graduated rate, the state has a flat rate applied to all corporate income.
Source
$7.25
Minimum Wage :
Oklahoma
Ohio’s commercial activity tax (CAT) applies to nearly all businesses in the state with gross receipts amounting to more than $150,000.
Source
$10.10
Minimum Wage :
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 North Dakota business tax rate for corporations is 1.41% to 4.31%.
Source
$7.25
Minimum Wage :
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.
Source
$7.25
Minimum Wage :
North Carolina
New York small business are required to pay withholding 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.
Source
$14.20
Minimum Wage :
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.
Source
$12.00
Minimum Wage :
New Mexico
If you’re a retailer or another type of small business that sells goods or provides services in the Garden State, there’s sale and use tax of 6.625% on certain items.
Source
$14.13
Minimum Wage :
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.
Source
$7.25
Minimum Wage :
New Hampshire
The Silver State is a 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.
Source
$10.50
Minimum Wage :
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.
Source
$10.50
Minimum Wage :
Nebraska
When it comes to state lines, some C corporations that operate in another state and only sales in Montana don’t have to pay corporate income taxes. If they don’t rent or own real estate in Montana (and their gross sales within the state don’t exceed $100,000), these types of entities can pay 0.5% on gross sales.
Source
$9.95
Minimum Wage :
Montana
In the Show-Me State, the employment tax rate for small businesses depends on how much and how often each employee gets paid. The rate typically ranges from 1.5% to 5.3%.
Source
$12.00
Minimum Wage :
Missouri
Mississippi charges a franchise tax for doing business in their state — in addition to the corporate tax on C corporations.
Source
*
N/A
Minimum Wage :
Mississippi
In Minnesota, small business taxes for unemployment insurance are calculated individually for each employer.
Source
$10.59
Minimum Wage :
Minnesota
In Michigan, there's a flat-rate corporate income tax of 6%.
Source
$10.10
Minimum Wage :
Michigan
Small businesses in Massachusetts are required to collect a sales tax of 6.25%.
Source
$15.00
Minimum Wage :
Massachusetts
In Maryland, the small business tax rate for corporations is 8.25% of taxable income.
Source
$13.25
Minimum Wage :
Maryland
If a small business in Maine has employees, they must pay an unemployment tax of 2.6%, which helps fund unemployment compensation for eligible workers.
Source
$13.80
Minimum Wage :
Maine
Louisiana currently charges a 4.45% sales tax.
Source
*
N/A
Minimum Wage :
Louisiana
Small businesses that provide limited liability to their owners in Kentucky are subjected to a limited liability entity tax.
Source
$7.25
Minimum Wage :
Kentucky
Kansas charges a flat surcharge for corporations with an income over $50,000.
Source
$7.25
Minimum Wage :
Kansas
Some cities and counties in Iowa have a 1% local option tax. The state distributes it from your annual tax return.
Source
$7.25
Minimum Wage :
Iowa
Indiana has a single, flat-rate corporate income tax of 4.9%.
Source
$7.25
Minimum Wage :
Indiana
Small businesses whose quarterly earnings are less than $50,000 are responsible for 5.4% unemployment tax per quarter.
Source
$13.00
Minimum Wage :
Illinois
Idaho's business tax income is 6%.
Source
$7.25
Minimum Wage :
Idaho
The withholding tax rate for businesses in Hawaii ranges between 1.4% to 7.9%.
Source
$12.00
Minimum Wage :
Hawaii
For C corporations, the corporate tax rate is 5.75% of a corporation’s taxable net income made in Georgia. Partnerships, S corporations and sole proprietorships pay tax at the individual rates which range from 1% to 5.75% depending on the amount of income.
Source
$7.25
Minimum Wage :
Georgia
For C corporations, there are two options for business tax: They are either subjected to a federal income rate at 5.5% (minus exemptions and credits) or the alternative minimum of 3.3%. The Sunshine State will mandate whichever is higher.
Source
$11.00
Minimum Wage :
Florida
In the nation’s capital, S corporations are not taxed as corporations. They’re considered pass-through entities, along with 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.
Source
$16.50
Minimum Wage :
District of Columbia
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%.
Source
$11.75
Minimum Wage :
Delaware
The business tax rate for corporations in Connecticut is 7.5%.
Source
$13.65
Minimum Wage :
Connecticut
Corporate income taxes for C corporations in Colorado is 4.55%.
Source
$13.65
Minimum Wage :
Colorado
Any net income made by a C corporation in the Golden State is subject to the corporate income tax rate of 8.84%.
Source
$15.50
Minimum Wage :
California
Small businesses in Arkansas are required to pay a franchise tax for doing business within the state.
Source
$11.00
Minimum Wage :
Arkansas
Certain small businesses in the Grand Canyon State are required to pay a transaction privilege tax, which has a rate of 5.6%.
Source
$13.85
Minimum Wage :
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 pay state withholding taxes from employee wages.
Source
$10.85
Minimum Wage :
Alaska
Depending on the business, SBOs in this southern state may be responsible for sales taxes, business privilege taxes, unemployment taxes and excise taxes.
Source
N/A
*
Minimum Wage :
Alabama
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If you sell goods, for example, you may be responsible for sales tax in some states. Or, the corporate tax rate may be higher or lower across state lines.
The tax landscape is changing for new and seasoned SBOs. Here is a snapshot of state tax laws impacting small businesses across the U.S.
As a small shop or company, where you do business plays a large role in the types of taxes that you’ll be liable for. It all varies state to state.
State-by-state tax laws impacting small businesses
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