Small Business Taxes in Minnesota | Our Essential Guide

Steve Bennett
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Minnesota Small Business Taxes

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

This comprehensive guide will walk you through the critical aspects of Small Business Taxes in Minnesota. 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 Minnesota. You must be guided by all the factors gathered in this article.

Small Business Tax Law in Minnesota

Minnesota’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 Minnesota 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 Minnesota 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 Minnesota

Starting a business in Minnesota 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 Minnesota must file an income tax return and may need to pay capital gains tax on any profits. The income tax rate in Minnesota can range from 5.35% – 9.85% (depending on income).
  • Sales Tax: Businesses in Minnesota that sell physical products might be required to collect sales tax on transactions and forward it to the Minnesota government. The sales tax rate in Minnesota is 6.875%.
  • Payroll Tax: If a business in Minnesota 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 Minnesota may be subject to a property tax varying from county to county. The property tax rate in Minnesota is 1.08%.
  • Franchise Tax: Some states, including Minnesota, may have a franchise tax, which applies to businesses simply for the privilege of operating in that state. Minnesota does not have a franchise tax for LLCs.
  • Self-Employment Tax: Sole proprietors and freelancers in Minnesota 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 Minnesota 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 Minnesota 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 Minnesota’s economy.

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Calculate Taxes in Minnesota

Understanding how to calculate taxes for small businesses in Minnesota. 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 Minnesota.

  • 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 Minnesota. 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 Minnesota Department of Revenue 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 Minnesota 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 Minnesota

The process of filing and paying taxes in Minnesota 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 Minnesota, 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 Minnesota Department of Revenue.
  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 Minnesota 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 Minnesota Department of Revenue. 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 Minnesota 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 Minnesota’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 Minnesota small business can significantly reduce your tax burden. Some common deductions available to small businesses in Minnesota 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 Minnesota 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 Minnesota

Accurate tax filing requires a certain level of expertise. Recognizing this, seeking the services of a good tax professional in Minnesota 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 Minnesota

Sanctions and penalties exist for not paying taxes for a small business in Minnesota. 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 Minnesota 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 Minnesota Department of Revenue or a tax professional to discuss payment options and avoid any penalties.

Where Do I File My Small Business Taxes in Minnesota?

Small business taxes in Minnesota can be filed with the Minnesota Department of Revenue 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 Minnesota Department of Revenue website for more information on how to file small business taxes in Minnesota.

FAQs

What taxes do small businesses in Minnesota need to pay?
Small businesses in Minnesota need to pay a range of taxes, including income tax, sales tax, and employer tax.
How do I register my small business for taxes in Minnesota?
You can register your small business for taxes in Minnesota by visiting the Minnesota Department of Revenue website and following the online registration process.
Do I need a tax ID number for my small business in Minnesota?
Yes, you will need a tax ID number, also known as an Employer Identification Number (EIN), for your small business in Minnesota. You can apply for an EIN through the IRS.
How often do I need to file taxes for my small business in Minnesota?
The frequency of tax filing for your small business in Minnesota will depend on a variety of factors. The Minnesota Department of Revenue website provides information on tax filing frequencies.
What is the deadline for filing taxes for my small business in Minnesota?
The deadline for filing taxes for your small business in Minnesota will depend on the particular tax and the date that your fiscal year ends.
What is the Minnesota sales tax rate for small businesses?
The Minnesota sales tax rate for small businesses is currently 6.875%.
How do I collect and remit sales tax for my small business in Minnesota?
You can collect and remit sales tax for your small business in Minnesota by registering for a Minnesota sales tax permit and following the steps for reporting and payment on the Minnesota Department of Revenue website.
Are there any exemptions or exclusions from Minnesota sales tax for small businesses?
Yes, there are some exemptions and exclusions from Minnesota sales tax for small businesses, including certain goods and services, and transactions that meet certain criteria.
What is the Minnesota small business tax credit?
The Minnesota small business tax credit is a credit for small businesses that hire employees from targeted groups, such as veterans, low-income individuals, and people with disabilities.
Does my small business qualify for any tax incentives in Minnesota?
Your small business may qualify for a variety of tax incentives in Minnesota, including credits for research and development, job creation, and energy efficiency.
What is the Minnesota corporate franchise tax?
The Minnesota corporate franchise tax is a tax on corporations and certain other entities that do business in Minnesota.
How is the Minnesota corporate franchise tax calculated?
The Minnesota corporate franchise tax is calculated as a percentage of your taxable income in Minnesota.
Does my small business need to pay the Minnesota corporate franchise tax?
Your small business may need to pay the Minnesota corporate franchise tax if it conducts business in Minnesota and meets certain criteria.
Can my small business claim the Minnesota subtraction for net interest expense?
Your small business may be able to claim the Minnesota subtraction for net interest expense on your tax return if you meet certain criteria.
How do I know if my small business needs to pay the Minnesota Alternative Minimum Tax?
Your small business may need to pay the Minnesota Alternative Minimum Tax if your taxable income, before subtracting exemptions and deductions, is over a certain threshold.
What is the Minnesota rule for separate accounting?
The Minnesota rule for separate accounting requires businesses with income from multiple states to allocate their income and apportion their taxes based on their business activities in each state.
How do I know if my small business needs to follow the Minnesota rule for separate accounting?
Your small business may need to follow the Minnesota rule for separate accounting if you have income from multiple states.
Do I need to include state taxes paid to Minnesota on my federal tax return?
Yes, you need to include state taxes paid to Minnesota on your federal tax return.
Can I deduct federal taxes paid on my Minnesota tax return?
Yes, you can deduct federal taxes paid on your Minnesota tax return.
Are there any tax breaks for small businesses impacted by COVID-19 in Minnesota?
Yes, there are several tax breaks for small businesses impacted by COVID-19 in Minnesota, including tax credit programs, debt relief programs, and assistance with property tax payments.
How do I claim a tax credit for making energy efficient upgrades to my small business in Minnesota?
You can claim a tax credit for making energy efficient upgrades to your small business in Minnesota by following the instructions on the Minnesota Department of Commerce website.
What is the Minnesota Angel Tax Credit program?
The Minnesota Angel Tax Credit program is a program that provides tax credits to investors in certain types of Minnesota-based businesses.
How do I qualify for the Minnesota Angel Tax Credit program?
To qualify for the Minnesota Angel Tax Credit program, your business must be certified as a “qualified business” by the Minnesota Department of Employment and Economic Development.
Does my small business need to pay Minnesota unemployment taxes?
Yes, your small business will generally need to pay Minnesota unemployment taxes if you have employees.
How do I report wages and pay unemployment taxes for my small business in Minnesota?
You can report wages and pay unemployment taxes for your small business in Minnesota on the Minnesota Unemployment Insurance website.
Are there any tax benefits for hiring employees with disabilities in Minnesota?
Yes, there are several tax benefits for hiring employees with disabilities in Minnesota, including federal and state tax credits and deductions.
What is the Minnesota Research Credit?
The Minnesota Research Credit is a credit for businesses that conduct research and development activities in Minnesota.
How do I know if my small business qualifies for the Minnesota Research Credit?
Your small business may qualify for the Minnesota Research Credit if you conduct qualified research activities and meet certain other criteria.
How do I apply for a tax abatement or relief program for my small business in Minnesota?
You can apply for a tax abatement or relief program for your small business in Minnesota by contacting your local government office or economic development agency and following the instructions for each program.
What is the corporate tax rate for small businesses in Minnesota?
The corporate tax rate for small businesses in Minnesota is 9.8%.
What is the sales tax rate in Minnesota for small businesses?
The sales tax rate for small businesses in Minnesota varies by jurisdiction, but it ranges from 6.5% to 8.375%.
How do I obtain a tax ID number for my small business in Minnesota?
You can obtain a tax ID number for your small business in Minnesota by registering with the Minnesota Department of Revenue.
What deductions are available for small businesses in Minnesota?
Small businesses in Minnesota may be able to deduct expenses such as rent, salaries, and equipment purchases.
Are there any tax credits available for small businesses in Minnesota?
Yes, there are various tax credits available for small businesses in Minnesota, including the Research and Development Credit and the Small Business Investment Tax Credit.
How do I file small business taxes in Minnesota?
Small businesses in Minnesota may file their taxes online through the Minnesota Department of Revenue’s website or through a tax preparer.
What is the Form ST-3 in Minnesota?
The Form ST-3 is a sales tax exemption certificate for small businesses in Minnesota.
Can I log in to Minnesota’s e-Services for Businesses as a business representative?
Yes, business representatives can log in to Minnesota’s e-Services for Businesses to manage their small business taxes.
How do I obtain a copy of my small business tax return in Minnesota?
Small businesses in Minnesota can request a copy of their tax return by contacting the Minnesota Department of Revenue.
How do I get assistance with my small business taxes in Minnesota?
Small businesses can contact the Minnesota Department of Revenue or hire a tax preparer for assistance with their taxes.
What is the penalty for not paying small business taxes on time in Minnesota?
The penalty for not paying small business taxes on time in Minnesota varies depending on the amount owed and the length of time it was owed.
What is the deadline for filing small business taxes in Minnesota?
Small business tax returns are due in Minnesota on April 15th.
How can I check the status of my small business tax refund in Minnesota?
Small businesses in Minnesota can check the status of their tax refund by contacting the Minnesota Department of Revenue.
How do I report and pay use tax in Minnesota for my small business?
Small businesses in Minnesota can report and pay use tax online through the Minnesota Department of Revenue’s website.
What is the Minnesota Alternative Minimum Tax for small businesses?
The Minnesota Alternative Minimum Tax is a tax on small businesses that have a larger than usual amount of deductions.
As a small business owner in Minnesota, am I required to carry workers’ compensation insurance?
Yes, small business owners in Minnesota are required to carry workers’ compensation insurance if they have employees.
Can I deduct health insurance premiums for my small business in Minnesota?
Yes, small businesses in Minnesota may be able to deduct health insurance premiums as a business expense.
What is the Minnesota Care Tax for small businesses in Minnesota?
The Minnesota Care Tax is a tax on businesses with a gross revenue over $500,000 that goes towards healthcare benefits for low-income Minnesotans.
Am I required to collect and pay taxes on freelance work I do as a small business owner in Minnesota?
Yes, small business owners in Minnesota are required to collect and pay taxes on any freelance work they do.
What is the Small Business Health Insurance Tax Credit and how do I know if I am eligible for it in Minnesota?
The Small Business Health Insurance Tax Credit is available to small businesses in Minnesota that offer health insurance to their employees, and it is calculated based on the number of employees and their average salary.
Can I deduct mileage for my small business in Minnesota?
Yes, small businesses in Minnesota may be able to deduct mileage as a business expense.
How do I obtain a copy of my W-2 for my small business taxes in Minnesota?
Small businesses in Minnesota can request a copy of their W-2 from their employer.
Does Minnesota offer any tax breaks for small businesses that hire veterans?
Yes, Minnesota offers a tax credit to small businesses that hire qualified veterans.
As a small business owner in Minnesota, am I required to withhold taxes from my employees’ paychecks?
Yes, small business owners in Minnesota are required to withhold taxes from their employees’ paychecks.
What is the MinnesotaCare Tax according to the Affordable Care Act?
The MinnesotaCare Tax was created by the Affordable Care Act to fund healthcare initiatives.
Are there any tax incentives for small businesses to implement energy efficiency measures in Minnesota?
Yes, Minnesota offers tax incentives for small businesses that implement energy efficiency measures.
How do I apply for a tax amnesty program in Minnesota?
Minnesota does not offer a tax amnesty program for small businesses.
How do I know if my small business is subject to Minnesota’s AMT?
Small businesses in Minnesota can check if they are subject to the Alternative Minimum Tax by using the Minnesota Department of Revenue’s AMT calculator.
What is the business property tax rate for small businesses in Minnesota?
The business property tax rate for small businesses in Minnesota ranges from 1.1% to 3.8%.
What are the electronic filing requirements for small businesses in Minnesota?
Small businesses in Minnesota are required to file electronically if they have a sales tax liability of $10,000 or more per year.

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Conclusion

Understanding and complying with small business tax laws in Minnesota 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 Minnesota.

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