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Florida Small Business Tax
Florida provides a robust infrastructure, foreign trade zones, and business incentive programs for startups. There are a host of other advantages for small business owners and entrepreneurs including the fact that small business regulations in the state are minimal. It is also considered to be a tax friendly state as it doesn’t impose any personal income tax. Florida business tax is lower than what it is in most states. This guide will provide an introduction to taxes for small businesses like types of taxes applicable in the state, Florida State tax rate, corporate and sales tax, and the taxation for different business structures.
Florida Business Tax
As a new business owner or budding entrepreneur; there are several facets of a business that you need to understand and one of such is the Florida business tax. At the same time, it is also important to identify the federal, state, and local business tax requirements. The type of taxes varies from one state to another although sales taxes, corporate taxes, and income taxes are common amongst most states. The Florida tax rate will also be different for different types of taxes. For example, the sales tax rate could be different from the use tax or property tax rate.
What taxes do businesses pay in Florida?
One of the important obligations of any new or existing business is to file tax returns and this could be for federal or state taxes. Each state in the USA has some form of taxes and business taxes can vary from one state to another. In some states, income tax is levied and in others there are no corporate taxes. A business in Florida may be subjected to different forms of Florida income tax and corporate taxes. Some of the other taxes that are common in this state include Communications Services Tax, Reemployment Tax, Discretionary Sales Surtax, Sales and Use Tax, Insurance Taxes, Beverage Tax, Documentary Stamp Tax, Corporate Income and Emergency Excise Tax, pollutant taxes, and Gross Receipts Tax among others. The Florida business tax rate for each category of taxes will be different.
Corporate Tax
The Florida corporate tax is also known as the corporate income tax or the franchise tax. It is a privilege tax imposed on specific businesses like professional corporations or for-profit corporations, which exist in Florida. The taxes are imposed on conducting business, or generating income through sales or service. The corporate tax is computed using several aspects of taxation like federal taxable income, additions, and subtractions, and Florida adjustments to arrive at an adjusted federal income. The Florida business tax rate for franchise tax or corporate tax is currently 3.535%, which has been reduced from 5.5% in 2019.
Sales tax
Sales tax in Florida is also known as the “sales and use tax” and is applicable on each sale by any business and also on storage and rental in the state. The Florida tax rate for sales tax is a flat 6% although it can vary in certain cases like the following:
- Sales tax on amusement machine receipts is 4%
- Sales tax on the license or lease of commercial real property is 5.5%
- Sales tax on electricity is 6.95%
There is another component to this type of Florida income tax and it is known as “use tax”. The Use tax is applicable if a business uses or consumes taxable goods or services especially when it has not paid sales tax at the time of buying or purchase. There is also a “Discretionary Sales Surtax” or county tax that is applicable in several Florida counties. This county tax is applicable to those transactions that are subjected to sales or use tax. The Florida Department of Revenue is responsible for collecting these taxes and helps in distribution of surtax to the counties.
How are Florida Businesses taxed?
If you are planning to start a new business in Florida then it is important to focus on the tax status of different forms of businesses. This simply denotes that a limited liability company will be taxed differently as compared to a sole proprietorship or a limited partnership. Some entities may be required to file some form of Florida income tax while other entities may be subjected to two or more taxes with the Florida business tax rate being different for each type of tax. Let’s look at the different types of Florida entities and their taxation.
LLC
If you form an LLC (Limited Liability Company) in Florida then you will be able to benefit from the fact that this type of entity is treated as a pass-through entity. This simply means that owners are not subjected to Florida income tax on the incomes that is passed on to them through the business. If the limited liability company is into selling of goods or services then it may be subjected to sales and use tax. The Florida business tax rate for sales and use tax is 6%. A limited liability company may also be subjected to the discretionary sales surtax depending on the county it is operating from. The surtax rate ranges from .5% to 2.5% although there are some counties where this tax is not imposed at all.
C Corporations
A professional corporation or C-Corp planning to conduct business in the state or is currently earning income in Florida, will be subjected to Florida corporate tax. This corporate income tax is also known as franchise tax and is imposed on the federal taxable income. The Florida corporation tax rate was 5.5% in 2019 and has been reduced to 3.535% in 2021. A C corporation has to report the corporate tax using the Florida Corporate Income/Franchise Tax Return (F-1120) and the due date is based on the tax year of the said corporation.
A C Corporation will also be subjected to Florida corporate tax in the form of Sales and Use tax if their business activities include the following:
- Retail sales of taxable items
- Tangible personal property repairs
- Manufacturing or production for retail
- Sale of service warranty contracts
- Operating amusement or vending machines
- Provide taxable service
The sales tax and discretionary sales surtax will be calculated for each of the above mentioned taxable transactions. The Florida corporation tax rate is 6% for sales and use tax and will vary from .5% to 2.5% for discretionary sales surtax.
S Corporation
An S Corporation is also known as S Subchapter and it is a type of corporation that enjoys pass through taxation similar to a limited liability company. Small business owners elect S corporations in Florida as it offers legal protection similar to C corporations but are not subjected to the Florida corporate tax. These types of businesses and their owners are shielded from paying any state income tax on their individual income or the business income. The owners of an S corporation will be subjected to federal income tax on the income received from the business since this is a pass through entity. Apart from this, if an S Corporation qualifies for sales and use tax then the Florida corporation tax rate for the same would be 6%.
Sole proprietorships
A sole proprietorship is a type of unincorporated business where there is a single owner who is subjected to personal income tax on any profits they earn from the business. It is also known as a sole trader and Florida considers income earned through the business as ordinary personal income. Hence, it is not subjected to Florida income tax although the owner or sole proprietor will be assessed for federal tax at the ordinary income tax rate, which varies from 10% to 37%. There are 7 tax brackets each having a different Florida business tax rate and the rate is decided on based on the income cutoffs. For example: the rate is 10% for income of up to $9,950 and 32% for income between $164,926 and $209,425 annually.
Partnerships
Partnerships are a specific business structure where there is a formal arrangement between two or more owners or parties for management and operations of the said business as well as sharing of profits. There are different forms of partnerships that you can form. Some examples are: general partnerships (GP), limited partnership (LP) and limited liability partnerships (LLP). Since the income from a partnership business is distributed to the partners, they will be subjected to federal income tax at the standard Florida income tax rates. You will be required to file the Return of Partnership Income (Form-1065).
Ready to Register your Florida Company?
Whether you are planning to form a limited liability company (LLC), corporation or a partnership firm in Florida, the new business formation process can be quite a comprehensive and time consuming exercise. We at IncParadise are an expert incorporation service provider in Florida and can help you with registration of your LLC or incorporation in the state.
Whatever the form of business, there are annual maintenance requirements of the state of Florida that every business and business owner needs to be compliant with. IncParadise offers several additional services including foreign qualification, S Corporation, and Florida Certificate of Good Standing among others.