Tax Services
Tennessee is a great place to do business, but its tax laws are not without their quirks. Here is list of taxes that you should consider while doing business in Tennessee. This isn’t necessarily an all inclusive list of every tax, but these will most likely affect your small business.
Federal Taxes
Personal Income Tax – Even though most businesses are a separate entity or corporation, they are pass-through entities. This means that the company’s profits are reported as income on your personal tax return, you pay income tax on the company’s profits and also on your W-2 income that may or may not be paid from the company you own.
Corporate or Partnership Income Tax – If your company is a regular C-Corporation, then it will pay tax on the income that it earns. If the company is a partnership, LLC or S-Corporation, then the income that it earns will flow through to your personal tax return but the company will not pay income tax. In any case, a tax return is due each year for these entities.
Payroll Taxes – FICA taxes (Social Security and Medicare) are due to the IRS at different times during the quarter depending on how large your payroll is. These taxes, along with Federal income tax withheld are reported to the IRS on Form 941 each quarter. Federal Unemployment tax is due on a quarterly basis and is reported using Form 940 at the end of each year. Of course, W-2s are due by January 31st of the following year.
1099-Misc Forms – These are due on January 31st of the following year. These should be sent to subcontractors that you pay $600 or more. Generally, you only need to send these forms to sole proprietors who are not doing business as a corporation.
Tennessee taxes
Franchise and Excise Tax – Even though these taxes are both reported on the same form, they are two separate taxes. First is the Franchise tax, which is based on the value of the business equity or its assets. Next is the Excise tax, which is based on the profit of the company. Even if the company is a pass-through entity for Federal income tax purposes, the company will need to pay the excise tax unless it is exempt.
Business (Gross Receipts) Tax – This tax is based on the gross receipts of the company. It is a small percentage (example .000375 times the total sales of the company). If your company needs a business license, then the county will not send you the next annual license until they get confirmation from the State that this tax is paid.
Payroll Taxes – The only state payroll tax is the State Unemployment tax. This is due at the end of each quarter.
Annual Report to the Secretary of State for a Legal Entity – While not technically a tax, in order for a corporation or LLC to stay active, an annual report needs to be filed with the Secretary of State along with a fee. You can file this annual report on line at https://tnbear.tn.gov/Ecommerce/AnnualReportID.aspx