More than the spectacular views, fresh seafood, amazing weather, laidback lifestyle and relaxed environment, there’s one great reason why many people choose to move to the Sunshine state – it’s the fact that there is no income tax in Florida. It’s the very same reason why a lot of entrepreneurs dream of putting up their own business there. Business tax is a significant expense for any company, big or small. Having a more relaxed taxation policies is truly a breath of fresh air for many business owners.
Business Taxes in Florida: An Overview
Florida is among the only seven states in America that don’t have personal income taxes. However, the state imposes 5.5% corporate tax, which is still low compared to most states. However, this is only applicable to C corporations wherein owners, or shareholders, are taxed separately from the entity. However, if you are a sole proprietor, you are free from paying taxes. The same is true for limited liability companies (LLCs) and partnerships.
How Florida Taxes Benefit Business Owners
Business taxes are generally low.
As compared to other states, business income taxes in Florida are generally lower. This, alone, provides great benefits not only to business owners but to workers as well. Because of the advantageous tax climate in the state, companies are able to make positive decisions that benefit employees. For example, instead of the money going to taxes, it is often allocated to employee benefits, which are a crucial factor for employee retention.
There are sales and use tax exemptions.
In Florida, business owners get tax exemptions on machinery and equipment used by a business to manufacture tangible personal property for sale, as well as on labor, parts and materials used in the repair and incorporated into the machinery or equipment. There is also sales and tax exemptions provided to production companies that engage in producing motion pictures for TV, TV series, commercial music videos, and recordings. Furthermore, there are sales and tax exemptions for steam energy or electricity used in certain manufacturing industries.
Florida offers Capital Investment Tax Credit.
The capital investment tax credit is offered specifically for businesses in the high-impact sector such as transportation industries, silicone technology, and solar panel manufacturing facilities. To avail of this credit, the business must establish a qualified project that results to a cumulative investment capital investment of at least $25 million. This credit may be claimed by the business for up to 20 years, with an annual amount of 5% of the eligible capital costs. Because of the relatively lower tax rates, entrepreneurs in Florida are able to utilize short-term personal loans for business taxes, as oppose to long-term financing options.
All forms of partnership don’t pay income taxes.
Business partnerships, regardless of the form, are not subject to income tax. Instead, income from the business is distributed to individual LLC members. These people then pay taxes only to the federal government as individuals in Florida don’t have personal income tax. For multi-member LLCs which are classified as partnerships but have a corporation as a member are subject to special state filing requirements.
Even C corporations enjoy tax exemptions.
As discussed earlier, only C corporations pay income tax in Florida. Generally, these businesses are taxed in two ways. They could either pay the standard 5.5% tax or the alternative minimum tax (AMT) which is 3.3%, whichever is higher after taking into account any exemption or reduced exemption in their business tax return. Furthermore, the first $50,000 in a corporation’s income is not subject to tax. So for example, your total income is $350,000. Only $300,000 will be subject to tax.
Take note, however, that even if your company is situated in Florida but you conduct significant business in other states, your income earned there might be subject for income tax in the said states. It is important to educate yourself about the so-called “nexus tax rules” and how they may apply to your business.
Florida is no doubt one of the best states for thriving small businesses. With the exploding population growth and retirees moving, there is such a beautiful opportunity for businesses to prosper in the Sunshine state, from retail to manufacturing, food and tourism. The tax benefits make it even more exciting for entrepreneurs to start their business in Florida.
