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May 24, 2019

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| 4/22/2019

Know Your Tax Liability

Big or small, every new business must pay state and federal taxes.

Florida
Corporate Income Tax Corporations and limited liability companies classified as corporations are subject to a 5.5% corporate income tax and must file a return annually (Form F-1120) even if no tax is due. Limited liability companies classified as partnerships must file a Florida Partnership Information Return (Form F-1065) if they are doing business in Florida and one or more owners is a corporation. Also required to file: the corporate owner of an LLC that is classified as a partnership for Florida and federal income tax purposes. S-corporations usually do not have to file a Florida corporate income tax return unless there is federal taxable income.

Reemployment Tax Floridians who paid at least $1,500 in wages within a calendar quarter, have employed one person for any portion of a day in 20 different weeks during the calendar year or are liable for federal unemployment tax must pay reemployment tax quarterly using Form RT-6.

Sales and Use Tax Businesses engaged in taxable transactions must register using Form DR-1 or at the Florida Department of Revenue’s e-file site. Businesses having $1,000 or less per year to report may file quarterly; $500 or less, semiannually; $100 or less, annually using Form DR-15.

Use Tax on Out-of-State Purchases When out-of-state sellers fail to collect Florida sales tax, buyers must make the payment on their own using Form DR-15MO. Applies to items purchased out of state from internet sites, mail order catalogs, auctions, shopping networks or toll-free shopping services, and to items physically purchased out of state when the merchandise is shipped to a Florida address.

Tangible Personal Property Tax An annual tax on personal property used for commercial purposes that is not included in the assessed value of the real property, excluding business inventory and state-registered vehicles; paid on Form DR-405 to the county property appraiser. All new businesses must file their first year; no additional filing is required thereafter if the amount of tangible property is less than $25,000.

Federal
Personal Income Tax For sole proprietorships and partnerships, profits and losses from the business are typically passed through to the owners and reported on their individual income tax returns. Beginning in 2018, some small business owners may be eligible for a 20% pass-through deduction. Officially known as the Section 199A deduction, this provision allows qualified small business owners to deduct up to 20% of business income from their personal income taxes. The requirements to qualify for this deduction are quite specific. Consult the IRS or a tax professional to determine if you are eligible.

Self-Employment Tax All net profits derived from doing business as either a sole proprietorship or partnership with no employees are subject to federal self-employment tax, which is equivalent to the Medicare and Social Security taxes employers withhold from their employees’ paychecks.

Q

I know I’ll need some money just to get up and running, but for what exactly, and how much should I allot?

AThe money you will need to get your business up and running falls into two general categories: startup costs and working capital. Startup costs are self-explanatory — simply the amount of money you will need to cover every expense required to open your business on day one. The exact costs you will need to plan for depend on the type of business you intend to start and on your business model; typically, however, they include: licenses, permits, site rental deposits, initial inventory, supplies and site buildout.

Working capital is the amount of money you will need to help cover expenses until your business reaches “breakeven” on a cash basis or, more simply stated, until total monthly sales pay for total monthly expenses. Since it usually takes several months for a startup business to reach breakeven, you will need to keep enough cash on hand to pay your monthly bills. Having enough working capital at your disposal gives your business the time it needs to grow and gain traction with your target market.

Before creating a business plan for your startup, you’ll want to create a financial plan. This will help you determine if your business can be financially viable and whether you will be able to access the money you need to get up and running. Strive to be as accurate as possible while still allowing for the unexpected. Your Florida SBDC consultant can help you right-size your expectations and guide you through the financial planning process to give your startup its greatest chance of success

Answer provided by Eddie Hill
Area Manager, Florida SBDC at the University of Central Florida

 

Get Your Free EIN

Every federal tax form must include the filer’s official federal ID number. Sole proprietors without employees may use their Social Security number; all others will need an Employer Identification Number. Get your EIN online at no charge from the IRS. www.irs.gov/businesses/small

Tags: Florida Small Business, Ask the Experts

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