Florida’s Tax Rates For Small Businesses and Corporations

States such as New York and California are attractive due to their bustling industries and high population centers. But that popularity comes with a price: higher operational costs and tax rates, which is why many owners and entrepreneurs are looking elsewhere to establish their businesses, including one of the most business-friendly states in the country, Florida. Its economy and industries have continued to attract small businesses who appreciate the state's tax-friendliness and pro-business culture.

Want to know how to start a new business in Florida? Then, forget about federal tax and the Internal Revenue Service (IRS) for a moment because you’ll want to know about state taxes. Use this comprehensive guide to everything you should know about small business taxes in Florida.

How Do Business Taxes in Florida Work?

Only C corporations pay state income tax in Florida. No other business entity has this requirement, including LLCs and S corps.

Key Takeaways 

The following corporation types must file in Florida:

• Business owners earning income. 
• Corporations earning income. 
• Corporations that operate in the state.
• Organizations with tax exemptions.

Florida Corporate Tax Rates

How are C Corporations taxed in Florida?

A Florida corporation must file Form F-1120 to report their income to public records, even if they won’t have taxes due. They must also file using Form F-1120 each year.

To determine how much you owe on your C corp business tax return, you must first determine the Florida corporate income base and rate. First, the tax base is a formula consisting of three factors: payroll (25%), property (25%), and sales (50%).

Second, you’ll add non-business income and subtract an exemption to determine your net income. As of December 2019, the exemption is $50,000. After determining your net income for your Florida business, you’ll figure out your tax rate.

The taxable rate of income in Florida depends on when your business opened. If your business:

• Opened before 01/01/2019: 5.5%
• Opened between 01/01/2019 and 12/31/2021: 4.458%
• Opened after 01/01/2022: 5.5%

Florida offers several corporate income tax incentives that may help your business reduce the amount owed. Potential incentives include:

• Capital Investment Tax Credit
• Community Contribution Tax Credit
• Florida Alternative Minimum Tax Credit (AMT)
• New Markets Tax Credit
• Rural Job Tax Credit

How are S Corporations taxed in Florida?

Taxes for an S corporation, or S corp, are unique in Florida. Compared to a C corporation, S corps aren’t subject to federal income taxes because S corps are pass-through entities.

Instead, owners will pass federal income tax on the annual income to its members, called shareholders. Individual income tax rates determine this amount.

S corp business owners are not required to pay state income taxes in Florida. The corporation itself won’t pay taxes, and shareholders won’t pay state income taxes because it is a pass-through entity. 

Florida Tax Rates for LLCs

Like S corporations, LLCs in Florida operate as pass-through entities. This means that if you start an LLC in Florida, owners won’t pay federal income tax on their small business income.

LLCs have a few options regarding how they’ll pay Florida business taxes. The options areas:

• A disregarded entity
• An incorporated LLC, or
• A partnership

Disregarded entities (single-member LLCs) in Florida don’t have to file a second Florida corporate income tax return. This owner would use the LLC owner’s return, whether the Florida LLC is owned directly or indirectly by a corporation.

A corporation that owns a single-member LLC must also file a Florida corporate income/franchise tax return to report:

• Its own income
• Single-member LLC’s income, even if ownership of the LLC is the corporation’s sole business activity

While not common, incorporated LLCs must pay state income taxes. In this situation, the state income tax is either 3.3% (the alternative minimum tax) or 5.5%.To file income taxes as an LLC classified as a corporation, you’ll complete a Florida corporate income/franchise tax return. LLCs classified as corporations will file Form F-1065 if one or more of its owners is a corporation. Any owner of this LLC type must also file a corporate income tax return.

Partnership Business Taxes in Florida

In Florida, as with other states, you can choose from three partnership types: 

• General partnership
• Limited liability partnership
• Limited partnership

There are differences among the partnership types:

A general partnership involves at least two people. Partners involved in general partnerships can individually enter binding agreements, business deals, or contracts. 

A limited partnership also consists of two or more partners:

• One or more general partners who operate the partnership with unlimited liability
• One or more limited partners who don’t operate the partnership without liability

A limited liability partnership has two or more partners. All partners are considered general partners who operate the partnership. Partners in a limited partnership have limited and shared liability.

All three partnership types are pass-through entities. This results in federal income going from the partnership to each partner for individual tax payments. Small business owners also don’t pay state income tax on their earnings. 

Sole Proprietorship Taxes in Florida

For small businesses in Florida, sole proprietorships are perhaps the easiest business entity to form. This business entity has the small business owner operating their own business.

As a result, sole proprietors must file federal income tax. However, their income is individual income, not one based on their business. The sole proprietor will then pay taxes based on an individual’s tax rate.

Since a sole proprietorship isn’t a corporation, a sole proprietor also won’t have to pay state taxes.

Taxes for Multistate Businesses in Florida

If your business operates in multiple states, there are other circumstances that you may be part of.

Given the size of Florida and its proximity to other states in the panhandle region, there may be some unusual tax situations you or your employees may find yourselves in. Scenarios include:

• You lived in two states during the same tax year.
• You work in another state but live in Florida.
• You work in Florida but live in another state. 

It’s important to note that Florida doesn’t participate in a reciprocity agreement.

Other Florida State Taxes

There are additional taxes business owners might also be responsible for in the state of Florida. These include: 

• Use tax. A use tax is due on the use or consumption of taxable goods or services when sales tax wasn't paid when purchased.
• Sales tax. A sales tax is included in the price of taxable goods or services and collected from the purchaser at the time of sale.
• Unemployment tax payments. Florida-based employers pay the Florida Reemployment Tax, which is deposited into a trust fund. 
• Excise tax. Items, including gas, cigarettes, cell phones, and alcohol, are subject to this tax. 

Benefits of Having a Small Business in Florida

There are numerous benefits to establishing a small business in Florida. Florida is a popular tourist destination due to its bright, sunny weather. The tourism dollars, along with the state's business-friendly climate and world-famous cities of Miami and Tampa, make Florida popular for small business owners and entrepreneurs.

While the labor market is competitive, it is filled with qualified professionals who can maximize the seasonal economy while minimizing lean periods. 

How to File Business Taxes in Florida

There are a few broad steps C corporations must take to file taxes in the state of Florida. 

• Form-1120. Corporations must file this form each year whether they owe money in taxes or not. 
• Florida corporate income base and rate. Corporations must calculate based on payroll, property, and sales. 
• Net Income. Add non-business income and subtract an exemption to determine net income.

After determining net income, the proper tax rate can be identified. Corporate tax incentives are also available and may help reduce a corporation's overall tax bill. 

Work with the Professionals

Florida small business tax rates vary based on numerous factors, including your business entity type. Regardless of how your business is structured, avoiding mistakes that can seriously impact your tax burden is imperative. That's why so many Floridians trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their needs. 

Whether it's tax preparation, payroll, or any of our professional accounting services, we have the solution you need at a price that fits your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help your business flourish in the Sunshine State!