Small Business Taxes in Tennessee | Our Essential Guide


Steve Bennett
Steve Bennett
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Tennessee Small Business Taxes

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

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

Small Business Tax Law in Tennessee

Tennessee’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 Tennessee 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 Tennessee 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 Tennessee

Starting a business in Tennessee 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 Tennessee must file an income tax return and may need to pay capital gains tax on any profits. There is no income tax rate in Tennessee.
  • Sales Tax: Businesses in Tennessee that sell physical products might be required to collect sales tax on transactions and forward it to the Tennessee government. The sales tax rate in Tennessee is 7.00%.
  • Payroll Tax: If a business in Tennessee 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 Tennessee may be subject to a property tax varying from county to county. The property tax rate in Tennessee is 0.74%.
  • Franchise Tax: Some states, including Tennessee, may have a franchise tax, which applies to businesses simply for the privilege of operating in that state. The franchise tax fee in Tennessee is 0.25% (net worth or capital).
  • Self-Employment Tax: Sole proprietors and freelancers in Tennessee 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 Tennessee 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 Tennessee 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 Tennessee’s economy.

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Calculate Taxes in Tennessee

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

  • 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 Tennessee. 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 Tennessee 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 Tennessee 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 Tennessee

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

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

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

Where Do I File My Small Business Taxes in Tennessee?

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

FAQs

What is the Tennessee sales tax rate for small businesses?
The Tennessee sales tax rate for small businesses is currently set at 7%.
How do I register my small business for Tennessee state taxes?
You can register your small business for Tennessee state taxes online at the Department of Revenue’s website.
What are the small business tax forms that I need to fill out in Tennessee?
The main small business tax form in Tennessee is the Business Tax Return, which can be filed online or in paper format.
Do I need to collect and remit local taxes to the cities and counties where my business operates in Tennessee?
Some cities and counties in Tennessee impose local sales or business taxes, which you are required to collect and remit to them based on applicable rates and rules.
What types of small businesses in Tennessee would qualify for tax exemptions or credits?
Tennessee provides tax exemptions and credits for certain types of small businesses, such as those engaged in agriculture, technology, or job creation, as well as businesses in designated empowerment zones or distressed communities.
How often do I need to file small business taxes in Tennessee?
Typically, small businesses in Tennessee are required to file their state taxes and sales taxes on a quarterly basis (four times a year) or annually, depending on their business activities, income, and fiscal year-end date.
How do I pay Tennessee sales tax for my small business?
The easiest way to pay Tennessee sales tax for your small business is through the online portal of the Department of Revenue, where you can set up a user ID and a payment account.
How does Tennessee treat small business capital gains on its tax return?
Tennessee follows federal tax rules for capital gains and defines qualified business income for small businesses differently depending on their entities.
What is the difference between small business excise tax and franchise and excise tax in Tennessee?
The small business excise tax applies to businesses with total receipts under $3,000,000, while the franchise and excise tax applies to other businesses who said receipts are over $3,000,000.
What penalties may be imposed for late or incorrect filing of Tennessee state tax returns?
The Tennessee Department of Revenue may impose various penalties on small businesses that do not file their tax returns on time or with errors, including failure-to-file and failure-to-pay penalties, interest charges, and audits.
What deductions can Tennessee small businesses claim on their state tax returns?
Tennessee follows federal tax deductions for small businesses such as supplies and high-tech equipment needed to run your business.
Can an out-of-state business be subject to Tennessee taxes?
Yes, out-of-state businesses may be subject to Tennessee taxes if they have sales or activities within the state above certain thresholds.
How does the Covid-19 pandemic affect Tennessee small business tax deadlines?
The Department of Revenue has reissued an important notice and all automatic penalties and interest related to franchise, excise, and hall taxes for April 15 filing and payment dates have been extended until July 15.
Do I have to pay business tax if my business is out of state but I own a rental property in Tennessee?
Yes, including if you own rental property or any other type of business asset located in Tennessee, you may need to pay Tennessee tax on that property or rental income.
If my small business owes back taxes, can I claim tax credits or exemptions in Tennessee?
Tennessee allows qualified small businesses to claim certain tax credits and exemptions, even if they have outstanding tax debts. However, it is recommended that they consult their tax accountants to determine their eligibility.
Can I apply for an abatement or reduction of Tennessee state taxes for hardship reasons?
In certain situations, a small business owner in Tennessee may be able to apply for an abatement or reduction of tax penalties or interest based on an undue hardship, such as a natural disaster or serious illness.
How long do I need to retain Tennessee state tax records for my small business?
Small businesses in Tennessee should keep their state tax records for at least three years from the filing due date or the payment date, whichever is later.
What is the Hall income tax for retired business owners in Tennessee?
The Hall income tax is a 6% tax on dividends and certain other interest income sources for retired, dividend-bringing-healthy income source owners – since it was discontinuously been decreasing since it’ll impossibly have a resonance
Where can I find more information on small business taxes in Tennessee?
For further information, visit the Department of Revenue’s website or consult a qualified tax professional experienced in Tennessee state taxation.
Do I need a permit to start my small business in Tennessee?
Yes, you need various permits that will help you legally perform daily economical activity in Tennessee.
How do I apply for a tax exception in Tennessee?
Tennessee tax exception is meant for various small businesses serving under multiple aspects and act of law qualification; check the department of Revenue, for further reference.
Can I operate my small business for free until it gets economically stabilized?
If you are a fresh small business owner, enrolling your business for cheaper registration if available instead of tax exception opportunities for opening the entity wouldn’t impact in more reduction of expenses abruptly it’s also referred to when it and how it’s related to IRS.
Do my small digital business transactions count in my small business taxation of Tennessee?
New regulations may impact small businesses that use social media to sell products or tour packages, services and goods, consistently, although adheres to a comparatively well mild procedure; takes necessary counsel to assist through every step needed.
Is Tennessee Corporate Tax code individually different than other Southern and Eastern states?
Entities organized in some other locations doing business in Tennessee may also have their own Corporate Levy taxes to organize and adhere by local and regional law.
I have started filling-out the wrong form repeatedly, what penalties can account for breaking it?
Not interested in submitting taxes? Submit go back and forward or find convoluted tools after analyzing your finances you can properly pay, no punishment would ensue in retrospect. Exceptions businesses founded some undeveloped explanation.
What estate-planning options are there for retirees with Tennessee-based small businesses?
The law of the land has a relatively clear plan to discountance Tennessee personal assets’ deathly tax feeations once it has been compiled into a single entity under structural law.
Can I alter report of financial correction during tax return submission period?
reports have an option for several securities concerning its appropriate calculation when turning out bad. It’s widely been advocated for unofficial holders believing legalization has failed to utilize new automated procedures Tennessee sets higher standard to appropriately structure law leading a well-off base so amendment is necessary.
Is the online-purchasing tax relevant to e-commerce within small Tennessee entrepreneurs?
Owing to avoid inflation demanded from Gov. Hasalm platform well-established by ACA. Officials made potential changes to e-commerce giant importance effective from especially digital marketplaces providing pop shades & foreign payment solutions including trading well companies generate that faces low-budget trading system slowing down for commercial purpose.
What kind of taxes does Tennessee require small businesses to pay?
Tennessee requires small businesses to pay a variety of taxes, such as business tax, sales tax, and income tax.
Are small businesses in Tennessee required to collect and remit sales tax?
Yes, small businesses in Tennessee are required to collect and remit sales tax to the state’s Department of Revenue.
How can I register my small business to pay taxes in Tennessee?
You can register your small business with the Tennessee Department of Revenue by completing an online application or submitting a paper application.
Do I need to obtain any special licenses or permits to pay taxes in Tennessee?
Depending on your business type, you may need to obtain various licenses and permits to pay taxes in Tennessee. You can find information on necessary licenses and permits on the Tennessee Department of Revenue’s website.
Is there a penalty for not paying business taxes on time in Tennessee?
Yes, there is a penalty for not paying business taxes on time in Tennessee. The penalty is a percentage of the amount due and may increase the longer the payment is delinquent.
What is the business tax rate in Tennessee?
The business tax rate in Tennessee varies depending on the category and size of the business. For example, the tax rate for retail businesses is 0.26%, while the tax rate for wholesale businesses is 0.125%.
When are Tennessee small business taxes due?
Tennessee small business taxes are generally due on the 15th day of the month following the end of the tax period.
Can I file my Tennessee small business taxes online?
Yes, you can file your Tennessee small business taxes online through the Department of Revenue’s website.
Are there any tax incentives or credits available for Tennessee small businesses?
There are several tax incentives and credits available for Tennessee small businesses, including the Jobs Tax Credit and the Headquarters Tax Credit.
How can I learn more about Tennessee small business taxes?
You can learn more about Tennessee small business taxes by visiting the Tennessee Department of Revenue’s website or by contacting a tax professional.
What is the penalty for failing to pay sales tax in Tennessee?
The penalty for failing to pay sales tax in Tennessee is 10% of the amount due, plus interest.
Can I apply for a sales tax exemption in Tennessee?
Yes, you can apply for a sales tax exemption in Tennessee if you meet certain criteria, such as being a non-profit organization or conducting business exclusively out of state.
How do I apply for a sales tax exemption in Tennessee?
You can apply for a sales tax exemption in Tennessee by completing an application provided by the Department of Revenue.
What is the Tennessee franchise and excise tax?
The Tennessee franchise and excise tax is a tax on the privilege of doing business in the state, based on a company’s net worth or taxable income.
Do Tennessee small businesses need to pay the franchise and excise tax?
Yes, Tennessee small businesses are subject to the franchise and excise tax.
When are franchise and excise taxes due in Tennessee?
Franchise and excise taxes are due in Tennessee on the 15th day of the fourth month following the end of the tax period.
Is there a minimum tax for Tennessee franchise and excise taxes?
Yes, there is a minimum tax for Tennessee franchise and excise taxes. The minimum annual franchise tax is $100, and the minimum annual excise tax is $22,500.
What is the sales tax rate for Tennessee small businesses?
The sales tax rate for Tennessee small businesses is 7%, with some counties and cities potentially imposing additional local taxes.
Does Tennessee have a use tax?
Yes, Tennessee has a use tax, which is a tax on the use of tangible personal property in Tennessee that was not subject to the sales tax.
Do I need to pay use tax if I purchase goods for my small business from another state?
Yes, you may need to pay use tax if you purchase goods for your small business from another state and the vendor does not charge Tennessee sales tax.
How can I determine if I owe use tax in Tennessee?
You can determine if you owe use tax in Tennessee by keeping detailed records of your purchases and consulting with a tax professional.
What is the Hall income tax in Tennessee?
The Hall income tax is a Tennessee state tax on interest and dividend income.
Are Tennessee small businesses subject to the Hall income tax?
Yes, Tennessee small businesses with income from interest and dividends are subject to the Hall income tax.
What is the tax rate for the Hall income tax?
The Hall income tax rate is currently 1%.
When are Hall income taxes due in Tennessee?
Hall income taxes are due in Tennessee on April 15th following the end of the tax year.
How do I file and pay my Hall income taxes in Tennessee?
You can file and pay your Hall income taxes in Tennessee through the Department of Revenue’s website or by mail.
Are there any tax exemptions or credits available for Tennessee small businesses that pay the Hall income tax?
No, there are currently no tax exemptions or credits available for Tennessee small businesses that pay the Hall income tax.
Can I deduct my Hall income tax payments on my federal tax return?
Yes, you can typically deduct your Hall income tax payments on your federal tax return as a state and local income tax deduction.
Are there any online resources available to help me with Tennessee small business taxes?
Yes, the Tennessee Department of Revenue’s website provides a wide range of online resources, including forms, FAQs, and other tax information for small businesses in Tennessee.

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Conclusion

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

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