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Taxes on Business Income in Florida

Filed under State Taxes. Fact checked on February 12, 2013.

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Florida imposes a tax measured by net income for the privilege of conducting business, earning income, or receiving income in Florida. Florida does not assess a tax on your personal income. What does this mean for you and your business? Basically, you can avoid the corporate level tax by operating as a noncorporate entity and you won't get hit with a personal tax on the business income that passes through to you.

Florida also imposes income-based taxes on certain types of businesses. In Florida, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business may determine whether you or your business pay income taxes on the business income.

Sole Proprietorship Income is Not Taxed

Florida does not impose an income tax on individuals. This basically means that if you operate your business as a sole proprietorship in Florida, your income will not be subject to Florida income tax.

Corporations Must Pay Franchise Tax

Florida imposes a franchise tax on foreign and domestic corporations for the privilege of doing business in Florida. The tax is imposed at the rate of 5.5 percent of net Florida income for the year. The first $5,000 of net Florida income for the year is exempt. Also, you will owe Florida Alternative Minimum Tax if you owed federal alternative minimum tax.

S Corporations May Escape Tax on Their Income

To avoid the double taxation trap of a regular corporation, the IRS allows businesses to elect to be treated as an S corporation. If you meet the federal tax law requirements to operate as an S corporation, your business to "pass through" its income to the shareholders. This means that your business will not pay any federal corporate level income tax. However, you'll have to claim your entire share of the business' income on your personal federal income tax return even if you did not take any money out of the business.

In Florida, an S corporation can be a real benefit tax-wise. S corporations are not subject to Florida income tax, except on income that's taxable for federal income tax purposes. There is no pass-through of income of the S corporation to individual shareholders for Florida income tax purposes, since Florida does not impose an income tax on individuals.

Partnership Income Isn't Taxable in Florida

If you operate your business as a partnership, there is no partnership-level tax in Florida

Every LLC Is Taxed As a Corporation.

Florida law recognizes businesses operating as limited liability companies (LLCs). As an LLC, you will be treated, for Florida tax purposes, exactly like a corporation. This is the case regardless of your tax treatment for federal tax purposes.

Warning

The tax benefit of operating your business as an LLC in Florida may be negligible, because it is not a pass-through entity in Florida. You may be better off operating as a pass-through entity — perhaps a partnership or S corporation, where there is no tax at the entity level. With no tax at the entity level, you earn your income from the business without paying any Florida income taxes, because Florida doesn't impose an income tax on individuals.

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