Small Business Taxes in South Dakota | Our Essential Guide

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South Dakota Small Business Taxes

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

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

How to File and Pay Business Taxes in South Dakota

Small Business Tax Law in South Dakota

South Dakota’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 South Dakota 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 South Dakota 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 South Dakota

Starting a business in South Dakota 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 South Dakota must file an income tax return and may need to pay capital gains tax on any profits. There is no income tax rate in South Dakota.
  • Sales Tax: Businesses in South Dakota that sell physical products might be required to collect sales tax on transactions and forward it to the South Dakota government. The sales tax rate in South Dakota is 4.50%.
  • Payroll Tax: If a business in South Dakota 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 South Dakota may be subject to a property tax varying from county to county. The property tax rate in South Dakota is 1.28%.
  • Franchise Tax: Some states, including South Dakota, may have a franchise tax, which applies to businesses simply for the privilege of operating in that state. South Dakota does not have a franchise tax for LLCs.
  • Self-Employment Tax: Sole proprietors and freelancers in South Dakota 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 South Dakota 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 South Dakota 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 South Dakota’s economy.

– WEBINARCARE EDITORIAL TEAM

Calculate Taxes in South Dakota

Understanding how to calculate taxes for small businesses in South Dakota. 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 South Dakota.

  • 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 South Dakota. 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 South Dakota 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 South Dakota 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 South Dakota

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

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

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

Where Do I File My Small Business Taxes in South Dakota?

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

FAQs

What is South Dakota’s sales tax rate?
The state sales tax rate in South Dakota is 4.5%.
How do I register my business to pay sales tax in South Dakota?
You can register your business for sales tax with the South Dakota Department of Revenue.
Does South Dakota have a state income tax?
No, South Dakota does not have a state income tax.
What is South Dakota’s corporate income tax rate?
South Dakota has no corporate income tax.
Are there any exceptions to South Dakota’s sales tax?
Yes, food and prescription drugs are exempt from sales tax in South Dakota.
What is the penalty for not paying use tax in South Dakota?
Failure to pay use tax in South Dakota can result in penalties and interest.
How do I register my business for use tax in South Dakota?
You can register your business for use tax with the South Dakota Department of Revenue.
What is the minimum income needed to file an income tax return in South Dakota?
Since there is no state income tax in South Dakota, no income tax returns are required.
Does South Dakota have a personal property tax?
South Dakota does not impose a statewide personal property tax.
Can I deduct my federal income taxes on my South Dakota state taxes?
No, South Dakota does not allow deductions for federal income taxes paid.
How do I close my business in South Dakota?
To dissolve a business in South Dakota, you must file documentation with the Secretary of State as well as the Department of Revenue.
How much does it cost to register a business in South Dakota?
Business registration fees in South Dakota range from $10 to $150, depending on the type of business.
What is the penalty for filing state taxes late in South Dakota?
The penalty for late filing of state taxes in South Dakota is 2% per month of the unpaid taxes, up to 24%.
How long do I have to keep business tax records in South Dakota?
You should keep your business tax records in South Dakota for at least three years.
What is the maximum amount of property tax that can be imposed on commercial property in South Dakota?
South Dakota does not impose a state-level property tax.
What is the tax rate for gasoline in South Dakota?
The gas tax rate in South Dakota is 30 cents per gallon.
Who qualifies for the South Dakota sales tax exemption?
Certain non-profit organizations and churches may qualify for sales tax exemption in South Dakota.
Can I file state taxes electronically in South Dakota?
Yes, South Dakota allows for electronic filing of state taxes.
What is the use tax rate in South Dakota?
The use tax rate in South Dakota is the same as the state’s general sales tax rate of 4.5%.
Can I make estimated tax payments in South Dakota?
Yes, businesses in South Dakota can make estimated tax payments throughout the year.
Do I need a state tax ID number in South Dakota?
If you have employees or owe use tax in South Dakota, you will need a state tax ID number.
What is the late payment penalty for sales tax in South Dakota?
The penalty for late payment of sales tax in South Dakota is 1.5% per month, up to 18%.
What is the state’s lodging tax rate in South Dakota?
The lodging tax rate in South Dakota is 1.5%.
Can I file South Dakota state taxes online?
Yes, taxpayers in South Dakota can file their state taxes online.
Do I need to pay use tax on purchases made online in South Dakota?
Yes, individuals and businesses in South Dakota are required to pay use tax on purchases made online.
What is the property tax rate for residential property in South Dakota?
Property tax rates in South Dakota are established at a local level and can vary by county and municipality.
Can I claim a state sales tax deduction on my federal income tax return in South Dakota?
You may be able to claim a state sales tax deduction on your federal income tax return in South Dakota.
Can I request a payment plan for unpaid taxes in South Dakota?
Yes, taxpayers in South Dakota can request a payment plan to pay unpaid taxes over time.
Does South Dakota offer free tax preparation services for low-income individuals?
Depending on your income level, you may be eligible for free tax preparation assistance through South Dakota’s Volunteer Income Tax Assistance program.
Is there an income tax in South Dakota?
No, there is no state income tax in South Dakota.
How do I obtain a South Dakota sales tax license?
You can obtain a South Dakota sales tax license by filling out the application and submitting it to the Department of Revenue.
What is the due date for South Dakota sales tax?
South Dakota sales tax is due on the 20th day of the month following the close of the reporting month.
How do I file a South Dakota sales tax return?
You can file a South Dakota sales tax return online or by mail.
What is the penalty for late payment of South Dakota sales tax?
The penalty for late payment of South Dakota sales tax is 10% of the amount due.
Do I need to collect sales tax on out-of-state sales?
If you have a significant economic presence in South Dakota, then you must collect sales tax on out-of-state sales.
How do I calculate my South Dakota sales tax?
To calculate your South Dakota sales tax, multiply your taxable sales by the state sales tax rate of 4.5%.
How often do I need to file a South Dakota sales tax return?
South Dakota sales tax returns are due on a monthly, quarterly, or annual basis depending on the amount of tax you collect.
Do I need to charge sales tax on services in South Dakota?
Some services are exempt from South Dakota sales tax, but certain services such as lodging and transportation are taxable.
Where can I find more information about South Dakota sales tax exemptions?
You can find more information about South Dakota sales tax exemptions in the South Dakota Sales Tax Guide.
How do I obtain a tax identification number in South Dakota?
You can obtain a tax identification number in South Dakota by applying online through the Department of Revenue’s website.
What is the South Dakota contractor’s excise tax?
The South Dakota contractor’s excise tax is a gross receipts tax on contractors who perform business in South Dakota.
How do I obtain a South Dakota contractor’s excise tax license?
You can obtain a South Dakota contractor’s excise tax license by filling out the application and submitting it to the Department of Revenue.
Is there a penalty for not registering for the South Dakota contractor’s excise tax?
Yes, the penalty for not registering for the South Dakota contractor’s excise tax is $50 per day up to a maximum of $1,000.
What items are exempt from South Dakota use tax?
Items that are owned and used outside of South Dakota are generally exempt from South Dakota use tax.
How do I obtain a South Dakota use tax license?
You can obtain a South Dakota use tax license by filling out the application and submitting it to the Department of Revenue.
What is the due date for South Dakota use tax?
South Dakota use tax is due on the 20th day of the month following the month in which the purchases were made.
How do I file a South Dakota use tax return?
You can file a South Dakota use tax return online or by mail.
What is the penalty for late payment of South Dakota use tax?
The penalty for late payment of South Dakota use tax is 10% of the amount due.
How do I calculate my South Dakota use tax?
To calculate your South Dakota use tax, multiply the purchase price by the statewide tax rate of 4.5%.
Do I need to collect use tax on items I purchase from out-of-state sellers?
If the out-of-state seller does not collect sales tax, then you are generally required to remit use tax on the purchase.
What is the South Dakota Business Tax Credit?
The South Dakota Business Tax Credit is a credit available to businesses who invest in certain industries or activities in South Dakota.
How do I qualify for the South Dakota Business Tax Credit?
To qualify for the South Dakota Business Tax Credit, you must invest in qualifying industries or activities and meet other requirements set forth by the Department of Revenue.
What is the South Dakota Research and Development Credit?
The South Dakota Research and Development Credit is a credit available to businesses who conduct research and development activities in South Dakota.
How do I qualify for the South Dakota Research and Development Credit?
To qualify for the South Dakota Research and Development Credit, you must conduct qualifying research and development activities in South Dakota and meet other requirements set forth by the Department of Revenue.
What is the South Dakota Biotechnology Credit?
The South Dakota Biotechnology Credit is a credit available to businesses who invest in biotechnology in South Dakota.
How do I qualify for the South Dakota Biotechnology Credit?
To qualify for the South Dakota Biotechnology Credit, you must invest in biotechnology in South Dakota and meet other requirements set forth by the Department of Revenue.
What is the South Dakota Reinvestment Payment Program?
The South Dakota Reinvestment Payment Program is a program that provides tax rebates for up to 50% of new tax revenues generated by reinvestment projects.
How do I apply for the South Dakota Reinvestment Payment Program?
To apply for the South Dakota Reinvestment Payment Program, you must present a project that would result in new tax revenues to the Department of Revenue.

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Conclusion

Understanding and complying with small business tax laws in South Dakota 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 South Dakota.

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