Florida is one of the most business-friendly states in the country. While its economy and industries attract small businesses, it is also a tax-friendly state for small businesses.
If you are looking to start a small business in Florida, you’ll want to know about taxes. Here’s what you should know about small business taxes in Florida.
Corporate Taxes in Florida
In Florida, only C Corporations pay state income tax. No other business entity has this requirement in the state.
The following corporation types must file:
- Corporations doing business in the state of Florida.
- Corporations earning income in the state of Florida.
- Corporations that operate in the state of Florida.
- Tax-exempt organizations.
Corporations must file Florida Form F-1120 to report their income, even if it won’t have taxes due. It must also file using Form F-1120 each year.
To determine how much you owe on your small 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 then subtract an exemption to determine your net income. As of December 2019, the exemption is $50,000. After determining your net income for your small business, you’ll figure out your tax rate.
The taxable rate of income in Florida depends on when your small business opened. If your small business:
- Opened before 01/01/2019: 5.5%
- Opened between 01/01/2019 and 12/31/2021: 4.458%
- Will open between or after 01/01/2022: 5.5%
Florida offers several corporate income tax incentives that may help your small business reduce the amount owed. Some potential incentives are:
- Capital Investment Tax Credit
- Community Contribution Tax Credit
- Florida Alternative Minimum Tax Credit (AMT)
- New Markets Tax Credit
- Rural Job Tax Credit
S-Corp Taxes in Florida
Taxes for an S-Corporation, or S-Corp, are unique in Florida. Compared to a C-Corp, 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 don’t have a requirement to pay state income taxes in Florida. The corporation itself won’t pay taxes. S-Corp shareholders won’t pay state income taxes because it is a pass-through entity.
LLC Taxes in Florida
Like S-Corps, LLCs in Florida operate as a pass-through entity. This means that LLC owners won’t pay federal income tax on their small business income.
LLCs have a few options regarding how they’ll pay taxes. The options areas:
- A disregarded entity
- An incorporated LLC, or
- A partnership
In Florida, disregarded entities (single-member LLCs) don’t have to file a second Florida corporate income tax return. This owner would use the LLC owner’s return, whether the LLC is owned directly or indirectly by a corporation.
A corporation that owns the 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 owners of this LLC type must also file a corporate income tax return.
Partnership 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 owner operate 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.
If your business does business 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. Some scenarios are:
- 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 take part in a reciprocity agreement.
Work with the Professionals
While taxes in Florida vary based on your business entity and other factors, it’s always a good idea to avoid business tax mistakes. Work with the pros at 1-800Accountant for your small business tax needs.