Whenever you start a new business or need to make changes to an existing one, it is fundamental to take into consideration the future tax implications you might be dealing with. Business taxes can be complicated and sometimes overwhelming to figure out, but having a solid business tax plan is key to support the growth and longevity of any size business. Our Raleigh business tax planning attorneys help entrepreneurs to implement effective business tax planning strategies — here are some answers to questions they receive every day.
Which Taxes Are Businesses in North Carolina Required to Pay?
The taxes your business may need to pay varies depending on the business activities. For example, if you are a retailer, wholesaler, or are engaged in renting, leasing, or selling taxable, tangible personal property will be required to pay Sales and Use tax. If you are a professional business such as a dentist, social worker, attorney, real estate broker, and any other profession that requires a license before being in business, you will likely be required to pay the privilege license tax.
All active and inactive corporations (including foreign corporations authorized to do business in North Carolina) may be subject to franchise and income tax, at a rate of $200 for the first one million dollars of the corporation tax base, and $1.50 for every thousand dollars that exceed one million dollars. Other important taxes may include federal and local taxes, unemployment insurance tax, and taxes for businesses with employees. To see which taxes your business must pay, it is best to consult with an attorney or tax professional.
Which Taxes Do Businesses With Employees Have to Pay?
Besides federal tax obligations, businesses with employees in the state of North Carolina must pay employee income taxes to the North Carolina Department of Revenue. In addition, state withholding taxes must be withheld from employee wages and remitted to the NCOR. Your business will need to be registered with the NCDOR online or by mailing in form NC-BR. After that, you will need to plan to file withholding taxes on a monthly or quarterly basis.
Besides withholding state taxes, businesses with employees should also plan for state unemployment insurance taxes. According to the NC Department of Commerce, unemployment insurance tax is a tax on employer payrolls paid by employers from which unemployment benefits are paid to qualified unemployed workers. The UI tax is paid quarterly after registering your business.
Are All Businesses Required to File an Annual Report?
Most businesses classified as an LLC, LLP, S-Corp, or C-Corp must file an annual report with the North Carolina Secretary of State, regardless of the size of the business. The annual report is used to confirm and update your business information every year. The few exceptions may be for sole proprietors and some partnerships. Business corporations and banks must pay a $20.00 fee to file online.
Other entities including LLCs, LLPs, and LLLPs must pay a fee of $202.00 to file online. The due date for the report depends on the type of business entity you have. Starting in 2017, all businesses required to file an annual report will do so directly with the NC Secretary of State. You may file by mail or online.
What Are a Few Important Business Tax Strategies I Should Use?
As you can see, in order to conduct business in the state of North Carolina, your company needs to be prepared to pay a few different federal, state, and local taxes. This matters because the way your business is taxed depends on how it is structured (i.e. the type of business entity it is based on).
If your business is brand new, choosing the right legal entity will impact how your business is taxed as it grows. If you have already been in business for a while, it may be wise to revisit your current business structure to see if, for example, switching from an LLC to an S-Corp or C-Corp may be more advantageous to support your growth. A tax status change is one possible strategy to consider.
The 2020 CARES Act brought on a lot of opportunities for small businesses that incurred losses in revenue, loosening the restrictions on Net Operating Losses and allowing business owners to get a larger offset for their taxable income. Another change brought on by the act is the ability to receive a tax credit for every employee that was kept on the payroll while a business was idle during the shutdowns. Changes like these may result in tax benefits for your business if you qualify. Other strategies to better deal with business taxes may include accelerating or deferring income in order to pay taxes at a lower rate the following year. This concept also works for business expenses.
It is strongly recommended for any business owner to seek the help of a knowledgeable tax professional or business tax attorney to better understand how to properly plan for business taxes in North Carolina. A trained professional can help you identify opportunities for savings and minimize your company’s tax burden. At NC Planning, we work with business owners all across the state and the nation and employ our knowledge of tax minimization strategies to help them make their business stronger and more profitable over time. Contact us for a free strategy session to see how we can help.