702-871-8678
NEVADA BUSINESS TAX
– ALL YOU NEED TO KNOW
Whether you are an entrepreneur planning a start-up in Nevada or an individual with a medium sized business idea; the state is a tax haven for all types of businesses. Does this mean you will never have to pay any type of Nevada business tax? Although there is no corporate or personal income tax, there are specific taxes that may be applicable depending on the type of business and revenue generated.
Informative Guide to Nevada Business Taxes
Most states in the US have a tax structure under which business income derived from the activities in the state are taxed. How a Nevada commerce tax will be levied is normally dependent on the legal form of the business.
It is important to know that corporations in most states are subjected to a corporate income tax and pass-through entities like limited liability companies (LLCs), S corporations, sole proprietorships, and partnerships are subjected to a personal income tax or some form of state tax on personal income. The tax rate for corporate and personal income can vary from one state to another. Currently, businesses are not required to pay Nevada business tax or corporate and personal income tax and this is applicable for 5 other states, namely Texas, South Dakota, Ohio, Washington, and Wyoming.
However, Nevada does have a form of gross receipts tax to be paid by corporations registered in the state. In order to ascertain the type of Nevada business tax you may have to file in the state, it is important to understand that taxes exist in the form of federal, state, and local tax.
Taxes for Nevada LLC
A Nevada limited liability company is considered to be a pass-through tax entity. An LLC can choose the type of Nevada business tax treatment from the following options:
- A Nevada limited-liability company can elect to be taxed as an S Corporation. In such a scenario, the LLC will be required to file Form 8832 and Form 2553 for Nevada business tax. What is Form 8832 and Form 2553? The IRS Form 8832 is known as the “Entity Classification Election” form. If an LLC doesn’t file the form then it will be provided a default tax classification status and this can lead to paying higher taxes. The Form 2553 is required for confirming that the LLC wants to be taxed as an S Corporation.
- A Nevada limited-liability company can also elect to be taxed as a C Corporation. It will be required to file Form 8832 for the same. The LLC will also be required to file a form 1120 for corporate tax return and pay Nevada commerce tax on its profits at the corporate tax rate. If the limited-liability company has profits distributed as dividends to the LLC owners then those dividends will be taxed too.
Most often than not, in order to avoid the double taxation of a C Corporation, a Limited Liability Company opts to be taxed just like an S Corporation. It is important to know that if a Nevada LLC chooses the above Nevada business tax treatment then they will not be able to change their tax treatment for a period of five years.
Federal Taxes for Nevada LLC
When it comes to federal taxes, a Nevada Limited Liability Company needs to consider several aspects so that it is not taxed incorrectly. In reality, the Internal Revenue Service (IRS) does not recognize a limited-liability company as a taxable entity but it is also a standard for the IRS to tax an LLC based on the number of owners or members in the company. The Nevada business tax for a limited-liability company can be that of a sole proprietorship if there is a single member or owner and that of a partnership if there is more than one member.
- Single Member LLC: A single member LLC is also known as a disregarded entity. This simply means that an LLC will retain its protection from liability clause but at the same time the business will be treated like a sole proprietorship and the activities of the member or business will reflect on the federal tax return. Apart from this, all items pertaining to Nevada business tax like income, gain, deduction, credit and loss have to be reported on Schedule C, E or F of the said individual or member’s personal income tax return.
- Multi-Member LLC: If the LLC has multiple members, what would be the Nevada commerce tax? Partnerships are considered to be flow-through business entities when it comes to federal tax. The partnership will not be subject to taxes but individual items like income, gain, deduction, credit and loss will flow through to the individual member’s or partners personal tax return. The member’s will be taxed at the personal income tax rates. The LLC would be required to file a Form 1065 – Return of Partnership Income and also report income and loss in Form 1040 – Individual Income Tax Return.
NOTE: You will require social security number (SSN) or employer identification number (EIN) for filing all federal income tax for Nevada LLC.
Modified Business Tax
MBT or Modified Business Tax is a type of Nevada commerce tax that is applicable to two types of categories and they are:
General Business
General business is considered as any employer who will be required to pay a contribution to the Department of Employee Training and Rehabilitation/Employment Security Division pursuant to NRS 612.535, in any calendar quarter. Businesses excluded in this category include Indian tribes, nonprofit organizations, financial institutions, and political subdivisions. The Nevada business tax as defined for the general business category is pursuant to NV Rev Stat § 363B (2017).
The tax rate is 1.475% on wages. This is after the deduction of any health benefits paid by the business or employer. One of the salient aspects is that the first $50,000 of gross wages will not taxable.
The Nevada business tax returns are normally due by the last day of the month following the calendar quarter in which the limited-liability company is required to pay the Unemployment Compensation pursuant to NRS 363B.110. It is important to note that there is a late filing penalty of 10% pursuant to NRS 360.417 and the interest will be calculated at .75% per month on the entities unpaid tax balance.
Financial Institutions and Mining
A Financial institution from the perspective of the MBT category is an entity that is required to pay a contribution pursuant to NRS 612.535 for any calendar quarter towards any type of business activity of the said institution. Mining under Modified Business tax category is pursuant to NV Rev Stat § 363A.030 (2017) and is an individual subjected to the Nevada business tax on the net proceeds of minerals in accordance with the provisions of NRS 362.100 to 362.240. Businesses excluded in this category include Indian tribes, nonprofit organizations, credit unions pursuant to NRS 678, and political subdivisions.
The Nevada business tax rate for financial institutions is 2% on the gross wages including financial institutions and net proceeds of minerals entities. This is after the deduction of any employee health care benefits that have been paid by the business or employer.
It is important to note that there is a late filing penalty of 10% pursuant to NRS 363A.130 and the interest will be calculated at .75% per month on the entities unpaid tax balance.
Commerce Tax
Nevada commerce tax is a type of business tax applicable on the privilege of engaging in business in the state. The term “engaging in business” stands for conducting, commencing or continuing a business. The term also takes into account business activities like exercising franchise or corporate powers as well as liquidation of a business entity.
The Nevada commerce tax return has to be filed by any business entity whose gross revenue within a taxable year is more than $4,000,000. A business would be taxed irrespective of the type of entity and hence a limited-liability company (LLC), limited-liability partnership, C- or S-corporation, sole proprietorship, and business or professional association will be required to file the return.
There are certain entities that are exempted from Nevada commerce tax and the list of such entities is available with the Nevada Department of Taxation.
Payroll Taxes
Nevada is one of the few states that do not have personal income tax. The types of Nevada commerce tax that businesses normally have to pay include modified business tax (MBT); employer paid state unemployment tax, and Nevada Bond Factor Tax also known as new employer tax. Payroll tax imposition in Nevada is governed by NV Rev Stat § 363A.130 (2017).
Payroll tax is a type of excise tax that is levied on each employer in Nevada. The rate of this type of Nevada business tax is different for general business category and for financial institutions and mining.
General Business
Imposition of excise tax at the rate of 1.475% of the wages paid by an employer. This tax is paid by the employer during a calendar quarter on amounts that exceed $50,000 and this is pursuant to NV Rev Stat § 363B.110 (2015). There is an allowable credit of 50% of the amount of Nevada commerce tax paid by business entities or employers in the preceding taxable year.
Financial Institutions and Mining
Imposition of excise tax at the rate of 2% of the wages paid by an employer pursuant to NV Rev Stat § 363A.130 (2017). There is an allowable credit of 50% of the amount of Nevada business tax paid by business entities or employers in the preceding taxable year.