Florida's Tax Rates For Small Businesses and Corporations

New York and California are attractive states to establish businesses due to their bustling industries and high population centers. However, that popularity comes with a price: higher operational costs and tax rates, which is why many owners and entrepreneurs are looking elsewhere to establish their businesses, including one of the most business-friendly states in the country, Florida. Its economy and industries have continued to attract small businesses who appreciate the state's tax-friendliness and pro-business culture.

Want to know how to start a new business in Florida? Then, you should forget about federal tax and the Internal Revenue Service (IRS) for a moment because you’ll want to know about state taxes. Use this comprehensive guide to everything you should know about Florida's small business and corporate tax rates.

How Do Business Taxes in Florida Work?

Only C corporations pay state income tax in Florida. No other business entity has this requirement, including limited liability companies (LLCs) and S corps, which are pass-through entities.

If you're one of the following corporation types, you must file taxes in Florida. This includes business owners and corporations earning income, corporations operating in the state, and organizations with tax exemptions.

Key Takeaways

Use this guide to learn how the entity your business is formed as is taxed, why it is beneficial to operate in Florida, and other important takeaways, including:

• Whether individuals pay taxes in Florida 

• Tax responsibilities of Florida-based pass-through entities

• C corp state tax protocols

Florida Corporate Tax Rates

How are C Corporations taxed in Florida?

Florida businesses operating as corporations must file Form F-1120 to report their income to public records, even if they won’t have taxes due. They must also file annually using Form F-1120.

You must calculate the Florida corporate income base and rate to determine how much you owe on your C corp business tax return. The tax base is a formula consisting of three factors: 

• Payroll (25%)

• Property (25%)

• Sales (50%).

Then, you’ll add non-business income and subtract an exemption to determine your net income. The current net income exemption is $50,000 and can only be used once among the members of a controlled group of corporations. After determining your net income for your Florida business, you’ll figure out your tax rate.

The current corporate income tax rate in Florida is 5.5%. Florida offers several corporate income tax incentives that will help your business reduce the amount owed. Potential incentives include:

• Capital Investment Tax Credit

• Community Contribution Tax Credit

• Florida Alternative Minimum Tax Credit (AMT)

• New Markets Tax Credit

• Rural Job Tax Credit

How are S Corporations taxed in Florida?

Taxes for an S corporation, or S corp, are unique in Florida. Compared to a C corporation, S corps aren’t subject to federal income taxes because S corps are pass-through entities.

Instead, the business will pass federal income tax on the annual income of its owners, called shareholders. Individual federal income tax rates determine this amount. Florida does not feature a state income tax. 

Florida Tax Rates for LLCs

Like S corporations, Florida LLCs operate as pass-through entities. This means that if you start an LLC in Florida, the business won’t pay federal income tax on that income.

LLCs have a few options regarding how they’ll pay Florida business taxes, which include:

• A disregarded entity

• An incorporated LLC, or

• A partnership

Disregarded entities (single-member LLCs) in Florida don’t have to file a second Florida corporate income tax return. In this scenario, you would use the LLC owner’s return, whether your Florida LLC is owned directly or indirectly by a corporation.

A corporation that owns a single-member LLC must also file a Florida corporate income/franchise tax return to report:

• Its own income

• Single-member LLC’s income, even if ownership of the LLC is the corporation’s sole business activity

While uncommon, incorporated LLCs must pay state income taxes. In this situation, the income tax rate is either 3.3% (the alternative minimum tax) or 5.5%.

To file income taxes as an LLC classified as a corporation, you’ll complete a Florida corporate income/franchise tax return. LLCs classified as corporations will file Form F-1065 if one or more of its owners is a corporation. Any owner of this LLC type must also file a corporate income tax return.

Partnership Business Taxes in Florida

You can choose from three partnership types in Florida.   

• General partnership. A general partnership involves at least two people who own the business. Its partners can individually enter binding agreements, business deals, or contracts, which might be advantageous in certain circumstances. 

• Limited partnership. A limited partnership also consists of two or more partners, which can be one or more general partners who operate the partnership with unlimited liability or one or more limited partners who don’t operate the partnership without liability.

• Limited liability partnership. A limited liability partnership has two or more partners. Unlike a limited partnership that can feature general or limited partners, all partners are considered general partners who operate this type of partnership. Partners in a limited liability partnership have both limited and shared liability.

All three partnership types are pass-through entities, resulting in federal income from the partnership to each partner for individual tax payments. 

Sole Proprietorship Taxes in Florida

Sole proprietorships are perhaps the easiest business entity to form in Florida. This business entity indicates that the small business owner will solely operate their own business.

As a result, sole proprietors must file federal income taxes. However, their income is individual, not based on their business. The sole proprietor will then pay taxes based on an individual’s tax rate.

And because a sole proprietorship isn’t a corporation, a sole proprietor also won’t have to pay state taxes in Florida. 

Taxes for Multistate Businesses in Florida

If your business operates in multiple states, you may also owe taxes in those states, which is called a tax nexus. A tax nexus indicates you've exceeded the minimum requirement for state officials to collect tax from your out-of-state business. Tax nexus rules vary by region, so reviewing them before entering each respective market is best. 

In addition to nexus considerations, given the size of Florida and its proximity to other states in the panhandle region, there may be some unusual tax situations you or your employees may encounter. Scenarios include:

• You lived in two states during the same tax year.

• You work in another state but live in Florida.

• You work in Florida but live in another state. 

Florida does not participate in reciprocity agreements, which ensure that out-of-state residents pay income tax only in their home state.

Other Florida State Taxes

There are additional taxes business owners might also be responsible for in the state of Florida. These include: 

• Use tax. A 6% use tax is due on using or consuming taxable goods or services when sales tax wasn't paid when purchased.

• Sales tax. A 6% sales tax is included in the price of taxable goods or services and collected from the purchaser at the time of sale.

• Unemployment tax payments. Florida-based employers pay the 2.7% Florida Reemployment Tax, which is deposited into a trust fund. 

• Excise tax. Items, including gas, cigarettes, cell phones, and alcohol, are subject to this tax.

Benefits of Having a Small Business in Florida

Establishing your small business in Florida offers numerous benefits. The state is a popular tourist destination due to its bright, sunny weather. The tourism dollars, the state's business-friendly climate, and the world-famous cities of Miami and Tampa make Florida a popular destination for small business owners and entrepreneurs to live and work.

While the labor market is competitive, it attracts the qualified professionals your business needs who can maximize the seasonal economy while minimizing lean periods.

How to File Business Taxes in Florida

These steps must be taken to file your Florida C corporation taxes.   

1. IRS Form-1120. Corporations must file this form each year whether or not they owe money in taxes to governmental authorities.
2. Florida corporate income base and rate. Florida corporations must calculate based on payroll, property, and sales.
3. Net Income. Add non-business income and subtract an exemption to determine net income.

After determining net income, the proper tax rate can be identified. Corporate tax incentives are also available, which can help reduce a corporation's overall tax bill.

Visit Florida's Department of Revenue for additional information.

Work with the Professionals

Florida small business tax rates vary based on numerous factors, including your business entity type. Regardless of how your business is structured, avoiding mistakes that can seriously impact your tax burden is imperative. That's why so many Floridians trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their needs.

Whether it's Florida small business tax preparation,  tax advisory, or any of our professional accounting services, we have the solution you need at a price that fits your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help your business flourish in the Sunshine State!