Are Taxes For Doing Business Cheaper In Florida?

Taxes are something every business owner has to consider. Most of the time, however, if a person is living in a particular state, and they want to start a business, they are going to start it right there where they live. That being said, a number of states have no personal income tax. This is a big benefit when starting a business, especially a sole proprietorship, where earnings are going to be taxed at personal income tax rates. It is important to consider what the tax rates are going to be, so you can best determine how to structure your business, as well as options that will help manage taxes. Florida is a state that has no state income tax. This will clearly benefit sole proprietorships, and LLCs, especially when the business starts turning a profit.

The downside to states that do not have personal income taxes is that they are rather clever about making this money up in other ways. Very good examples of this are Texas and New Hampshire, where there is no personal state income tax, but they have some of the highest property taxes in the country. Florida, however, has the highest rate of new businesses being started than any other state in the union. There is, within this number, a very high number of those who are self-employed in financial services. With so many retirees in Florida, this makes sense, however, it also artificially inseminates the numbers relative to what is actually going on.

Some of the metrics used to determine what a good state is relative to starting a business include state policies regarding import/export, entrepreneurship and innovation, talent pipeline, business climate and infrastructure. If someone is looking to relocate to a state where starting a business is both inexpensive as well as supported by a solid local infrastructure, there are a number of places where they could do better than Florida. That being said, Florida does place in the top 5 of states with the lowest tax burdens on its residents and businesses.

Florida does have a corporate income tax, however. Individuals do not pay taxes, but corporations, and other artificial entities, must file a corporate income tax return. It must be filed even if no taxes are due. There corporate income tax rate is currently 5.5%. Certain business must also pay reemployment tax, which is basically unemployment tax. It is used to provide partial income to employees who lose their jobs through no fault of their own. The corporate income tax, when considered in conjunction with the reemployment tax, may not exactly make starting a business in Florida as practical from a tax perspective; it all depends on individual circumstances.

One type of tax that many states have, but that Florida does not, is a franchise tax. This type of tax is also known as a privilege tax, as it essentially is a tax on affording owners the right to do business in a state. IN addition, Florida does have some of the lowest overall tax rates for residents, which is currently at roughly 7.4%. This is overall current taxation and included in this number are property and local sales taxes. Wyoming, Alaska and Nevada are the only states with lower overall individual tax rates than Florida.

With the proliferation of ecommerce, businesses can basically be started from anywhere. The costs of moving to another state to start a business might be a bit nonsensical. It might be best to stay in whatever state you currently reside, provided there is an adequate customer base for your product, and instead of moving, hire a good accountant to help you manage taxes very efficiently. That is likely the best way to proceed no matter where a business is started, and in the end, the are too many variable per situation to adequately assess definitively if taxes for doing business in Florida are less expensive than other states. On that note, they have a fairly competitive overall business climate, which likely means more than even taxes do, because it shows they are a business-friendly state looking to maintain a stable economy for residents.

Pros and Cons for Starting an LLC in Florida

city-11087_640Starting a business is a huge step for anyone. The precariousness of starting out, however, is not for the faint of heart. Unless you have absolutely nothing to personally lose when you start out, you will likely want to take all the steps you can to protect your personal assets from any legal actions that might be taken against your business. No one wants to think about that when starting out, but the facts certainly do remain. The other thing that has to be considered, especially at the outset, is the fact that tax burdens in the initial phases, and without the help of a clever accountant, can fast become a burden you don’t want when dealing with balancing out all the expenses of getting established. To this point, structuring your business under the aegis of a limited liability corporation (LLC) from the outset is likely the best thing you can do. An LLC protects the personal property of each member from being used to satisfy bills, or judgments, against the business. They also provide much-needed favorable tax treatment, which is necessary for survival in the beginning, and becomes even more important at the 3 to 5 year mark, when most new businesses start to show a profit.

An LLC provides for multiple owners, and one managing member who is responsible for managing the business.

The profits and losses in an LLC pass directly through the LLC to the owners personal income tax return. This is a humongous tax benefit, especially in the initial phases, if all owners are working jobs where they are earning salaries, an LLC is a nice write-off, as it will likely not warrant profits for at least a few years. IRS Form 1065 is filed by the LLC, and Form K-1 itemizes each members profit. This profit is not considered earned income, so it is not subject to self-employment tax. If, however, the LLC has one owner, it will be considered a sole proprietorship. This means that the owner will have to show income or losses from the business on their personal income tax. This requires a Schedule C in addition to your in addition to your individual tax return. When negating income through business losses, this model can work out in the event you don’t have a partner in the business. Your personal property is still protected and you get to write off losses. When it becomes a little trickier is when profits start showing up. To this point, when the LLC is established, exercising a modicum of clairvoyance when establishing the Articles of Organization is necessary for establishing the terms for adding or removing members. The terms and conditions of LLC creation also vary from state-to-state.

computer-416569_640The basics of LLCs aside, there are some pros and cons to establishing an LLC in Florida. One huge advantage is the ability for the LLC to choose its own federal tax treatment, and it also remains largely free from taxation on the state level. LLCs are disregarded entities in the eyes of the IRS, which means the LLC can choose to be taxed as a corporation, or a sole proprietorship. This clearly benefits business owners, and this is also one of the main reasons Florida is 5th in the nation for overall tax climate for businesses. Another huge perk is that Florida has no tax on individual income. This means when the LLC starts turning a profit, and if that profit is recognized, there is no state income tax assessed.

Florida law also protects each member’s personal assets from any court judgments, decrees or orders made against the LLC. They also go one step further and protect the assets of the business from any creditors attempting to collect a personal debt against any member. Creditors in Florida are limited to getting what is called a “charging order,” which basically means if a member takes a distribution from the LLC, the creditor will receive that distribution. This does not, however, allow a creditor to force a distribution from the LLC. This is a key factor to having an LLC in Florida, as a number of states do not go this far to provide distinction between personal and business assets for LLC members.

The cons to creating an LLC in Florida largely have to do with a legal decision in 2010. In June of that year, the Florida Supreme Court, in Shaun Olmstead et. al., vs. Federal Trade Commission, placed limitations on asset protection available to a single-owner LLC. This was a landmark case in that it ruled that a creditor could, through court process, seize the assets of a single-member LLC to satisfy unpaid judgments. This means that single owner LLCs will have to consider adding at least one member to avoid being subject to asset protection limitation. This ruling does not, as of yet, extend to multi-member LLCs. This legal uncertainty that was established with this decision is fast becoming a huge negative for establishing an LLC in Florida. One more ruling will extend that limitation on personal asset protection to LLCs with more than one member, almost rendering LLC creation in Florida somewhat senseless. A lot remains to be seen, and these are all things to consider before establishing your business as this type of entity in Florida.

Step By Step Instructions For Starting A Business In Florida

Starting your own business is the ultimate freedom. You’re in control. You call the shots. There’s a lot of responsibility, but the satisfaction of building something big from the ground up more than makes up for the late nights and 80-hour weeks. There are steps you must go through to start a business, even before you sell your first product.

Florida is no exception. However, the Sunshine State is very business-friendly, with low taxes, zero state income taxes and an easy-to-follow regulatory system. If you’re thinking about starting a business in Florida, you’re already ahead of the pack. Here is a guide to getting your new business up and running under the Florida sun.

Take Baby Steps Towards Entrepreneurial Success


The first, and most basic, step you need to take is to see if you need a license. This will vary depending on the type of business you wish to run and even can vary from county to county. The best way to find this information is contact the county tax collector.

Also be aware of zoning laws. If you plan on running your business in a residential area, you might have problems. Again, it depends on the type of business. If you’re a consultant working on a computer in your home office, this probably won’t be an issue. But it never hurts to check.

The Tax Man Is Waiting For You

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You also have to register your business with the Department of Revenue. This must be done before you can start collecting and paying certain taxes. When you register with the Department of Revenue you’ll might need to pay corporate tax, reemployment (unemployment) tax, and sales and use tax.

Next, you have to let Uncle Sam know you’re opening up shop by registering with the IRS. It might be a good idea to consult with a certified accountant, as the laws and regulations governing the IRS can be challenging. However, if you plan on being a sole proprietor, much of your business taxes will be tied to your personal taxes. The rules change if you plan to start an LLC or corporation. Again, the advice of an accountant can save you money, and help prevent the dreaded IRS audit.

It’s All In The Name

Unless you’re going to use your own legal name, you’ll need to register a fictitious business name with the Florida Department of State Division of Corporations. Filing a fictitious business name basically means you publish the name in an approved newspaper in the county where the principal place of business will be located. Please note that it’s up to you to research the business name first, to ensure it’s not already in use or not trademarked, before you publish the name. In Florida, registering a fictitious name costs $50, with a $30 fee for a certified copy of the registration.

Enjoy Doing Business In Florida


The above steps are the basics you need to get your Florida business off the ground and running. While most of this can be done by yourself, it doesn’t hurt to enlist the help of a small business attorney and accountant to make sure you are operating within the law.

Florida is a great place to do business and is one of the easiest states for start-ups. By adhering to a few basic regulations, keeping your paperwork in order and having a great business idea, you can grow your business as much, or as little, as you want, under the Florida sun.