What Do Indiana Businesses Need To Know About Business Taxes?
Are you running a business, or considering starting one, in the State of Indiana? Congratulations! Probably the business is doing well, and you have begun collecting sales tax. Remember, those tax dollars belong to the government. You are probably registered with the Indiana Department of Revenue for that particular tax responsibility.
If you are new in Indiana or the business field, this journey may seem tough and confusing. For that reason, we want to lay down all guidelines and facts that you need to know about business taxes in Indiana.
What Type Of Business Do You Own?
The type of business you run highly determines how you will present the tax to the authorities. What does this mean? A corporation and a limited liability company will file their tax dues differently. Your business may be currently set to pay taxes via the individual tax system or the corporate tax system. Let us look into details where each business entity fits in Indiana’s tax system.
Limited Liability Company
Limited liability companies do not have to pay income tax to the State of Indiana or to the federal government. A limited liability company has a member or several members in its business structure. The state requires the LLC to redistribute its income to its members who then reciprocate the same by paying federal and state taxes.
LLCs are put under partnerships in the tax system but could also be classified as a corporation. If it regroups to the corporation tax system, the LLC stands liable to follow Indiana’s corporate income tax system.
For instance, your LLC with multiple members is commonly classified the same as that of partnerships. If the company records a net income of $200,000, it is divided between members. Upon receiving a share, each member will pay personal income tax.
If you operate your limited liability company as a single member, your tax issues will be treated as those of a sole proprietorship. This means that your company will not pay taxes as a business but the taxes will reflect on your individual income tax return form.
Unlike LLCs, corporations have a flat corporate tax rate that is put on the corporation’s name. Here’s an illustration: Corporation X records an adjustable gross income for the year as $200,000. Normally, the income will be divided into two for the first and last six months of the financial year. The specific tax rates can now be applied to the income, summed up and paid as corporate income tax.
Also known as special corporations, S corporations do not file their tax returns as the ordinary corporations do. An S corporation deviates from paying separate federal income tax. The total taxable income is usually divided among the shareholders, who then pay their share of income tax to the federal government.
In Indiana, S corporations do not pay corporate income tax to the state. Nonetheless, each shareholder is required to pay his or her individual income derived from the company to the state’s tax department.
Partnerships are less complicated than business entities. The income from the business is divided among the partners in the business. They individually pay the taxes subject to the amount received to both federal and state bodies.
Indiana’s personal income tax rate currently stands at 3.23% of the gross income. In this case, a partnership will distribute its income to the individuals and then the fellow partners will surrender 3.23% of the income to the state.
Sole proprietors receive the business’ income as personal income. You are required to pay tax applied to the income incurred from that business. If your business made $50,000 net income, the whole amount reflects as personal income. According to Indiana tax laws, you are required to pay 3.23% of the income when you file your individual Indiana tax return.
Some business owners may ask if it is necessary to file tax returns without making any sales from the business. Yes! Once your business is registered and issued a Registered Retail Merchant Certificate, you are required to file your returns. In the case of zero sales, you will fill in the zero-tax filing. Indiana Department of Revenue will impose a penalty on your business if you do not file returns.
We would like to encourage business owners to have expert financial advisors on their side when handling tax issues. We understand that law and financial language may not be everybody’s cup of tea, but mishandling even the tiniest of tax issues can create much bigger problems down the road. You can easily have your tax questions resolved immediately by experts so you can get back to growing your business.