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Sunshine Tax: Taxes for Small Business in Florida

Florida is among the most tax-friendly states in America. If you have a small or midsize business in the state of Florida, you may be shielded from many typical forms of small business taxesBut how can you know which tax laws apply to your business? This post will cover some of the more common tax questions related to taxes for small businesses in Florida.

What Types of Tax Liabilities Are There for Florida Small Businesses?

Florida business owners should be aware of the following:

  • Corporations that do business in Florida must pay a 5.5% income tax
  • Florida has a sales tax rate of 6%
  • S Corporations are exempt from paying state income tax
  • Sole proprietorships, partnerships, and most LLCs are exempt from state income tax
  • Florida residents do not pay a state income tax
  • Business owners should expect to pay federal income tax on business earnings
  • Business conducted in other states may be subject to additional state laws

Because so many businesses are exempt from Florida state income tax, many small business owners can benefit from having their business shielded from traditional tax liabilities.  Below, we’ll go into greater detail regarding the rules for taxes for different types of business entities in the state of Florida.  

What Kinds of Taxes Can an S Corporation Expect to Pay in Florida?

In Florida, S Corporations are not treated as traditional corporations when it comes to taxes. Thus, S Corporations do not pay the state’s 5.5% corporate tax. S Corporations are also exempt from federal income tax.

How is this possible? With an S Corporation, the income earned by the business goes directly to the business owners. The owners are then expected to pay federal income tax based on the income they receive from their company. However, this income is not subject to Florida state tax.

A man and a sketch out a project for their LLC business

How Are Small Business LLCs Taxed in Florida?

An LLC can be classified in one of two ways. Typically, LLCs are designated to be partnerships or disregarded entities. However, in this case, the LLC does not pay Florida income tax simply because it is not classified as a corporation.

However, some LLCs can be classified as incorporated. If they are classified as an incorporated business, the LLC must pay the standard 5.5% Florida state income tax—or at least the 3.3% alternative minimum tax. LLCs classified as corporations will file Form F-1065 if one or more of its owners is a corporation.

The actual business owner does not have to pay tax to the state of Florida for the income they personally receive from the business, except in those cases in which the LLC is incorporated.

How Are Small Business Partnerships in Florida Taxed?

Business partnerships can be classified as general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs). Regardless of these specific designations, none of these partnerships are required to pay state income tax in Florida.

However, the partners of these businesses are required to pay federal income tax on the money they receive from these businesses, based on standard income tax rates. But because Florida does not tax ordinary income, business owners of partnerships are not required to pay Florida state income tax.

A Florida business owner sits at a table with a pile of tax papers.

What Tax Obligations Are There for Sole Proprietorships in Florida?

Florida treats a sole proprietorship like a partnership. The only difference is that the state looks at the distributed income to one proprietor instead of many partners. Thus, like partnerships, sole proprietorships are shielded from traditional state income tax.

This also means that the proprietor is expected to pay tax on any business income he or she receives, though only to the federal government. Since it is considered to be personal income, the individual does not pay state income taxes.

What If You Have a Multi-State Business? How Are You Taxed?

For most organizations, there are no required taxes for small businesses in Florida. However, if you own a business in Florida but earn money from another state, you are considered to have a nexus in those states. Therefore, in these situations, your business may be subject to the tax laws in those states.

Because different states have different state tax laws, this can be confusing. If you earn money in multiple states, it may be prudent to review nexus rules to see how they may impact your business. 

Let Xendoo Help You

Looking for Florida bookkeeping services? Xendoo can help. We understand the rules regarding taxes for small businesses in Florida and help you keep your books up-to-date. We can even help with Florida tax preparation. When you have questions, contact the experts at Xendoo.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

7 Don’t-Miss Tax Deductions for eCommerce Businesses

Why settle for standard business deductions, when there are more opportunities to lower your tax bill, some of them seemingly tailor-made for eCommerce businesses? Before you prepare your return this year, check out this list of possible deductions.

1. Home office.

In order to qualify for this one, you must use at least one room in your home exclusively for business; working on your laptop in the living room doesn’t count. If you meet that requirement, you can deduct a percentage of nearly every house-related expense you can think of, including rent/mortgage, utilities, repairs/maintenance, and insurance premiums. (The percentage deducted is based on the percentage of the house’s total square footage that your office occupies.)

2. Office supplies, equipment, and software.

Furniture, computer, printer, camera gear (if used for photographing your merchandise), postage meter, inventory management software, paper clips — if it’s used in your office it’s usually 100% deductible.

3. Phone/internet.

You can deduct a portion of your phone and internet charges based on the percentage of time that you use them for business.

4. Transportation and travel.

Any car used for business purposes is eligible for deductions; even if it’s also your personal vehicle you can still deduct a percentage. There are 2 deduction options: a flat amount per mile or a total of actual costs such as gas and parking fees.

Other travel-related deductions include airfare, cab fare, tips, meals, and conference tickets.

5. Fulfillment costs.

You can deduct the costs of packaging materials and shipping to customers.

6. Subcontractors.

Whenever you use independent web developers, graphic designers, photographers, content writers, bookkeepers, temporary office staff — anyone not on your payroll — their fees are 100% deductible.

7. Merchant processing fees.

You probably use one or more credit card processors such as PayPal, Stripe, or Square. But did you know you can deduct their fees?

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

5 Things Small Business Needs to Know About the New Tax Reform Law

The good news: lower tax rates. The bad news: fewer deductions.

Although you won’t be filing a tax return based on the new law until 2019, you will have to abide by its provisions starting right now. Here’s an overview of the top 5 changes that could significantly affect your small business operations.

1. Lower tax rates.

Pass-through entities (S corporations, LLCs, sole proprietorships, and partnerships): This means that the net income from your business is “passed through” to your personal tax return. Until now, this income was taxed at the same rate that individuals pay. Under the new law, you can take a 20% deduction on that income. There are some exceptions, though, such as most service businesses whose taxable income exceeds $157,500 for single filers and $315,000 for joint filers.

C corporations: Until now, there was a graduated tax structure, up to 35% of income. All that has been replaced by a flat rate of 21% for all C corporations.

2. Higher bonus depreciation.

Over the past several years, it seems like the rules changed every year for what percentage of “up-front” depreciation you could deduct on equipment or real estate purchased for your business, rather than writing it off over a period of years. This may make not only figuring your tax, but also tax planning for capital expenditures, pretty tricky. For your 2017 return (which you’ll be filing this year), bonus depreciation is 50%. Starting with your 2018 return, it’s 100%; and it will then be phased out completely over the next 5 years.

What’s more, this deduction can now be applied to “used” as well as new items, as long as they comply with the other terms of the provision.

3. Expanded availability of cash accounting.

Cash accounting means that a company records income and expenses when they’re received or paid. With accrual accounting, a more complex system, income, and expenses are recorded when they are owed. Under the old tax laws, a business couldn’t use cash accounting if its annual gross receipts averaged $5 million or more for the prior 3 years. That ceiling has been raised to $25 million. This should simplify things especially for businesses that carry inventory.

4. Fewer deductions and credits.

We’ve listed a few of the ones most often claimed by small businesses:

  • Business interest expenses: Reduced to 30% of taxable income. However, this rule doesn’t apply to businesses with an average annual gross income of $25 million or less.
  • Entertainment expenses associated with the conduct of business: Repealed.
  • Transportation fringe benefits (mass transit passes, parking privileges, etc.): Repealed. However, if you continue to provide this benefit, it will be tax-free for your employees.
  • Per diem rates at which you reimburse your employees for business travel expenses: No change.
  • On-site eating facilities: Reduced from 100% to 50%. However, if you continue to provide this benefit, it will be tax-free for your employees.
  • Domestic property activities (Section 199): Repealed.
  • Net operating losses: You can no longer carry them back for 2 years, but the 20-year limit on carrying them forward is eliminated. You can deduct up to 80% of taxable income.
  • Paid family or medical leave: There’s a new credit ranging from 12.5% to 25%, depending on the amount you paid your employee.
  • Business property costs (Section 179): A bit of good news is that the amount you can deduct has doubled from $500,000 to $1 million; of course, that amount can’t be more than your income. And the phaseout ceiling has increased from $2 million to $2.5 million

5. Higher contribution caps for retirement plans.

If you offer a retirement savings plan to your employees, the amount you and they can contribute may have been increased.

  • 401(k), 403(b) or 457: Increased from $18,000 to $18,500. The maximum for participants over the age of 50 making “catch-up” contributions has also increased, from $24,000 to $24,500.
  • IRA and Roth IRA: No change, $5,500 for those up to age 49 and $6,500 for ages 50 and up.

Xendoo stands ready to help you sort out these complex new tax provisions, and take full advantage of the breaks they offer to small businesses. The time to start planning is now!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.