Small Business Taxes in Arkansas | Our Essential Guide


Steve Bennett
Steve Bennett
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Arkansas Small Business Taxes

Owning and operating a small business in Arkansas is exciting and fulfilling. However, it also comes with responsibilities, including staying informed about Arkansas tax laws and ensuring that your Arkansas business complies with all applicable regulations. If you will start a Limited Liability Company in Arkansas, this one’s for you! 

This comprehensive guide will walk you through the critical aspects of Small Business Taxes in Arkansas. Understanding different taxes allows you to make informed decisions that will benefit your business and help you stay on the right side of the law.

Webinarcare Editorial Team will help you easily understand small business taxes in Arkansas. You must be guided by all the factors gathered in this article.

Small Business Tax Law in Arkansas

Arkansas’s small business tax law defines and outlines the tax obligations and exemptions for various businesses, including Limited Liability Companies (LLCs). These laws comprise various taxes that small businesses must comply with for income, sales, payroll, property, and other industry-specific taxes. Each type of tax presents unique implications for small businesses, and navigating through this maze can be quite challenging. Therefore, understanding these taxes in detail is crucial for LLCs as it aids in effective tax planning and helps avoid non-compliance penalties.

LLCs in Arkansas enjoy certain benefits under the small business tax law. Generally, an LLC is considered a pass-through entity, and its profits are passed directly to its owners, who then report this income on their personal tax returns. This differs from starting a corporation in Arkansas that faces double taxation on corporate profits and dividends. However, it’s noteworthy that the taxable profit of an LLC is not just the cash the owners take out – it includes the company’s overall profits.

So, appropriate measures must be taken to ensure accurate reporting and minimize tax liabilities as much as possible. Tax laws concerning LLCs often change, and keeping abreast of these updates plays a pivotal role in the successful running of the business. If you are still looking for an LLC service to help you with your taxes, we reviewed these services, including the top features and affordable prices.

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Type of Taxes For Small Businesses in Arkansas

Starting a business in Arkansas significantly contributes to the local economy. However, operating such businesses here requires an in-depth understanding of the types of small business taxes. Small businesses must adhere to these taxes’ specific regulations, rates, and filing deadlines to avoid penalties and operational interruptions. These taxes include but are not limited to:

  • Income Tax: Typically, all businesses in Arkansas must file an income tax return and may need to pay capital gains tax on any profits. The income tax rate in Arkansas can range from 2% – 6.6% (depending on income).
  • Sales Tax: Businesses in Arkansas that sell physical products might be required to collect sales tax on transactions and forward it to the Arkansas government. The sales tax rate in Arkansas is 6.50%.
  • Payroll Tax: If a business in Arkansas has employees, it is responsible for withholding payroll taxes from the employee’s wages and transferring them to the relevant tax agency.
  • Property Tax: Businesses that own property in Arkansas may be subject to a property tax varying from county to county. The property tax rate in Arkansas is 0.62%.
  • Franchise Tax: Some states, including Arkansas, may have a franchise tax, which applies to businesses simply for the privilege of operating in that state. The franchise tax fee in Arkansas is $150.
  • Self-Employment Tax: Sole proprietors and freelancers in Arkansas may be required to pay self-employment taxes, covering social security and Medicare costs.
  • Excise Tax: Some businesses may be liable to pay excise taxes, typically applied to certain goods and services such as alcohol, tobacco, and gasoline.
  • Unemployment Insurance Tax: Employers in Arkansas might be required to pay unemployment insurance taxes, which fund unemployment benefits for workers who lose their jobs.

Understanding the types of small business taxes in Arkansas is the first step towards financial transparency. Remember, when you start an LLC, you’re not only launching a business, you’re also taking on a mantle of fiscal responsibility. Stay informed, stay compliant, and contribute to the growth of Arkansas’s economy.

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Calculate Taxes in Arkansas

Understanding how to calculate taxes for small businesses in Arkansas. You will not just fathom the different taxes and how they work but also how you came up with them. Here is how you calculate taxes in Arkansas.

  • Income Tax: Business income tax is calculated based on the profits reported on your income tax return. The amount of tax due will be based on the tax rate in your specific tax bracket.
  • Sales Tax: To calculate sales tax, multiply the total sales receipts by the sales tax rate in Arkansas. The sales tax amount should be added to the customer’s price for goods or services.
  • Payroll Tax: Payroll taxes include federal income tax, Social Security, and Medicare taxes. You can use the tax tables or tax calculator provided by the IRS to calculate these taxes. In addition, employers are responsible for paying the Federal Unemployment Tax (FUTA).
  • Property Tax: Property taxes are calculated by multiplying the property’s assessed value by the local property tax rate.
  • Franchise Tax: Franchise tax calculation varies by state. It could be based on your net worth, income, or a flat fee. Consult the Arkansas Department of Finance and Administration for details.
  • Self-Employment Tax: Self-employment tax consists of Social Security and Medicare taxes. To calculate it, multiply your net profit from self-employment by 15.3%.
  • Excise Tax: Excise taxes are usually included in the product’s price, like gasoline or alcohol, and are often levied per unit (like per gallon or bottle) rather than as a price percentage.
  • Unemployment Insurance Tax: These rates vary by state and by the individual employer’s experience rating. The employer’s experience rating is based on the benefits paid to former employees, so new businesses in Arkansas usually have a relatively low rate.

It is recommended to consult a tax professional to ensure accuracy and compliance with all relevant tax laws.

File and Pay Business Taxes in Arkansas

The process of filing and paying taxes in Arkansas can be broken down into several steps. Here is a step-by-step guide on how to go about it:

  1. Gather all relevant documents: Collect all the necessary paperwork, including W-2 forms from your employer(s), 1099 forms for freelance or self-employment income, income statements from banks or financial institutions, and any other relevant receipts or records.
  2. Determine your filing status: Assess your marital status and household situation to determine the appropriate filing status, such as Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Widow(er) with Dependent Child.
  3. Choose a filing method: In Arkansas, you can file taxes electronically using tax software or prepare a paper return. Electronic filing is generally faster, more convenient, and can minimize errors. You can file your taxes by mail and submit them to the Arkansas Department of Finance and Administration.
  4. Calculate your taxable income: Calculate your total income by adding up all your earnings, including wages, tips, self-employment income, dividends, and interest. Deduct any eligible adjustments and deductions to arrive at your taxable income.
  5. Complete the tax return: Fill out the Arkansas tax forms electronically or on paper based on your chosen filing method. Take your time to review and double-check the information provided to minimize errors.
  6. Submit your tax return: If filing electronically, follow the instructions provided by the tax software to submit your return electronically. If filing on paper, mail your completed tax return to the Arkansas Department of Finance and Administration. Include any required forms, schedules, and copies of your W-2 or other income statements.
  7. Determine your payment method: Calculate the taxes owed or the refund due. If you owe taxes, there are several payment options available, such as electronically via direct debit or credit card, by mail with a check or money order, or through an electronic funds transfer. Choose the payment method that suits you best.
  8. Pay your taxes: Submit your tax payment by the Arkansas deadline. Ensure the payment is postmarked by the due date to avoid penalties or interest charges.
  9. Keep copies for your records: Make copies of all documents associated with your tax return, including the completed forms, payment proof, and any supporting documentation. Store these records in a safe place for future reference.

Remember to consult Arkansas’s official tax website or seek professional advice to ensure compliance with any specific tax regulations or updates in the state.

Small Business Tax Deductions

Tracking and claiming deductions for your Arkansas small business can significantly reduce your tax burden. Some common deductions available to small businesses in Arkansas include:

  • Business Expenses: Ordinary and necessary expenses, such as rent, utilities, and office supplies, can be deducted from your income.
  • Depreciation: The cost of business property, such as equipment, vehicles, and buildings, can be deducted over a specified period. Knowing it has tax deductions is better if you plan to create a rental property for your Arkansas LLC
  • Employee Wages and Benefits: Employees’ salaries, wages, and benefits can be deducted as a business expense. 
  • Business-related Travel and Meals: Expenses incurred while traveling for business purposes or meals consumed during business meetings can be deducted, subject to certain limitations.
  • Home Office Deduction: If you use a portion of your home exclusively for business purposes, you may be able to deduct a portion of your home expenses, such as mortgage interest, property taxes, and utilities.
  • Retirement Plan Contributions: Contributions made to a qualified retirement plan for yourself and your employees can be deducted as a business expense.

Hire a Tax Professional in Arkansas

Accurate tax filing requires a certain level of expertise. Recognizing this, seeking the services of a good tax professional in Arkansas can be beneficial for your small business. Hiring a tax professional will safeguard you from possible mistakes and help you maximize your tax savings. Considering their value, selecting the right professional becomes crucial.

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Sanctions For Not Filing Small Business Taxes in Arkansas

Sanctions and penalties exist for not paying taxes for a small business in Arkansas. The specific sanctions and penalties can vary depending on the amount owed and the time the taxes remain unpaid. Some common sanctions and penalties for unpaid small business taxes in Arkansas include:

  • Late payment fees
  • Interest charges on unpaid taxes
  • Revocation of business license
  • Seizure of business assets
  • Legal action, such as wage garnishment or liens on the property.

Paying small business taxes on time and in full is important to avoid these sanctions and penalties. Suppose you are unable to pay your small business taxes. In that case, it is recommended that you contact the Arkansas Department of Finance and Administration or a tax professional to discuss payment options and avoid any penalties.

Where Do I File My Small Business Taxes in Arkansas?

Small business taxes in Arkansas can be filed with the Arkansas Department of Finance and Administration or a state-approved online tax filing service. The specific process for filing small business taxes can vary depending on the business entity type and the revenue earned during the tax year. It is recommended that small business owners consult with a tax professional or visit the Arkansas Department of Finance and Administration website for more information on how to file small business taxes in Arkansas.

FAQs

What is the sales tax rate in Arkansas for small businesses?
The sales tax rate in Arkansas for small businesses is 6.5%.
What is the corporate income tax rate in Arkansas for small businesses?
The corporate income tax rate in Arkansas for small businesses is 6.5%.
Does Arkansas have a state franchise tax?
Yes, Arkansas has a state franchise tax.
What is the state franchise tax in Arkansas for small businesses?
The state franchise tax in Arkansas for small businesses is $150.
Is there a personal property tax in Arkansas for small businesses?
Yes, there is a personal property tax in Arkansas for small businesses.
What is the threshold for personal property taxes in Arkansas for small businesses?
The threshold for personal property taxes in Arkansas for small businesses is $2,500.
Does Arkansas have a business license tax?
Yes, Arkansas has a business license tax.
What is the fee for a business license tax in Arkansas for small businesses?
The fee for a business license tax in Arkansas for small businesses varies by city and county.
Does Arkansas have a minimum franchise tax?
Yes, Arkansas has a minimum franchise tax.
What is the minimum franchise tax in Arkansas for small businesses?
The minimum franchise tax in Arkansas for small businesses is $150.
Is there a deadline for filing small business taxes in Arkansas?
Yes, there is a deadline for filing small business taxes in Arkansas.
When is the deadline for filing small business taxes in Arkansas?
The deadline for filing small business taxes in Arkansas is May 1st.
Are LLCs taxed in Arkansas?
Yes, LLCs are taxed in Arkansas as pass-through entities.
What is a pass-through entity in Arkansas for small businesses?
A pass-through entity in Arkansas for small businesses is an entity where the income or loss is passed through to the individual to report on their personal tax returns.
What are the advantages of a pass-through entity in Arkansas for small businesses?
The advantages of a pass-through entity in Arkansas for small businesses include the ability to avoid double taxation.
What are the disadvantages of a pass-through entity in Arkansas for small businesses?
The disadvantages of a pass-through entity in Arkansas for small businesses include the self- employment tax and higher likelihood for audits.
What is the self-employment tax in Arkansas for small businesses?
The self-employment tax in Arkansas for small businesses is 15.3%.
Does Arkansas have a business income tax?
Yes, Arkansas has a business income tax.
What is the business income tax rate in Arkansas for small businesses?
The business income tax rate in Arkansas for small businesses is 1.5%.
Does Arkansas have a small business exemption?
Yes, Arkansas has a small business exemption.
What is the small business exemption in Arkansas?
The small business exemption in Arkansas exempts businesses with less than $100,000 in taxable income from the minimum corporate income tax.
Does Arkansas tax capital gains for small businesses?
Yes, Arkansas taxes capital gains for small businesses.
What is the capital gains tax rate in Arkansas for small businesses?
The capital gains tax rate in Arkansas for small businesses is the same as the regular corporate income tax rate.
Does Arkansas require businesses to collect sales tax?
Yes, Arkansas requires businesses to collect sales tax.
What items are subject to sales tax in Arkansas for small businesses?
Most tangible personal property and some services sold in Arkansas are subject to sales tax for small businesses.
Does Arkansas have a use tax for small businesses?
Yes, Arkansas has a use tax for small businesses.
What is a use tax in Arkansas for small businesses?
A use tax in Arkansas for small businesses is a tax on the use of tangible personal property or taxable services in the state.
Does Arkansas have a single business tax?
No, Arkansas does not have a single business tax.
What is the penalty for filing late small business taxes in Arkansas?
The penalty for filing late small business taxes in Arkansas is 5% per month up to a maximum of 25%.
Does Arkansas have a tax credit or incentive program for small businesses?
Yes, Arkansas has a tax credit or incentive program for small businesses.
What is the tax credit or incentive program in Arkansas for small businesses?
The tax credit or incentive program in Arkansas for small businesses rewards hiring and investment in targeted industries through income or payroll tax credits.

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Conclusion

Understanding and complying with small business tax laws in Arkansas is crucial for the success of your business. By staying informed about filing requirements, tax rates, deductions, and credits, you can make informed decisions that will benefit your business and help you avoid potential tax penalties. Consider consulting with a tax professional to ensure your small business fully complies with all applicable tax laws in Arkansas.

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