Everything you need to know about tax planning in Florida

During the pandemic, several companies from California and New York moved their headquarters to other states. Companies that moved gave several reasons for their departure, including lower tax rates, a desire for more employees to work remotely, and more flexible work policies post-COVID.

Although there are several reasons one could choose to move to Florida, tax wise is a smart decision. Florida is one of the lowest tax burdens in the entire United States. Here’s everything you need to know to understand Florida taxes and manage your money and business in a smart way.

Major Taxes in Florida

Florida has quite a lot of taxes, including the citrus tax, but there are several major tax categories to worry about in Florida.

  • Corporate Income Tax
  • Sales and Use Tax
  • Property Tax

Florida has additional taxes, some of which are too high to offset income earned in other tax areas. However, most companies will focus primarily on these taxes, as they will have to deal with these three categories of taxes.

What makes Florida different from other States

Florida’s tax duty is low compared to other states because there are many taxes that Florida simply doesn’t collect.

For example, Florida is one of seven states without income tax (the others are Alaska, Nevada, South Dakota, Texas, Washington, Wyoming). Florida is especially attractive to people who are nearing retirement because it does not apply income taxes to social security benefits, IRA or 401 (k) withdrawals, or even pensions.

Benefits do not end in old age. Florida has no property or inheritance tax, repealed since 2005 and prohibited by the state constitution.

Understanding Tax Types

Some of these taxes have appendices and loopholes. For example, Florida does not collect income taxes but collects corporate income taxes (depending on the type of business). Similarly, Florida collects property taxes, but there are several privileges.

Corporate Tax

Good news for small business owners: Florida offers many benefits! Regulation is actually very minimal compared to other states, and there are few barriers to entry.

Florida also requires fewer taxes than most other states. In fact, they do not impose income taxes, with a few exceptions. Fortunately for small business owners, these privileges actually benefit users. This is because these privileges target large companies, not small local businesses.

C vs S Companies

When it comes to corporate tax in Florida, it is essential to understand the difference between C corporations and S corporations.

A C corporation is a conventional corporate structure in which shareholders are taxed individually from the business entity. Taxes are paid on corporate profits before distribution of returns to shareholders, on which date dividends are subject to personal income tax.

Instead, an S corporation chooses to pass on corporate income taxes, losses, deductions and credits to shareholders for tax purposes. This means that shareholders report their income and losses on their personal tax returns, thus avoiding the double taxation observed in C companies.

C corporations are the only ones subject to corporate tax in Florida, although the rates are relatively low. S corporations are functionally protected from corporate or personal income tax since business income and losses are subject only to personal income tax, which is not charged in Florida.

If you are subject to corporate income tax, consult a tax planning lawyer. This is one of the best investments you can make for your return.

LLC, Partnership and Sole Proprietorship

A limited liability company or LLC is a type of business structure in which the business owner is not personally responsible for the debts of the business. It runs with a combination of businesses and partnerships.

Basically, it’s a pass-through entity designed to protect business owners from financial and legal risks. Most (but not all) LLCs in Florida do not pay state income taxes because they are not legal entities. If an LLC is established, Florida imposes taxes.

A partnership is a relationship between two or more people to conduct business. Like an LLC, it is generally considered a pass-through organization (i.e., the profit and loss of the business is passed to the partner). Florida does not require income taxes on partnerships.

Individual proprietorship is the big champion of the Florida tax game. Individual proprietorship is not a business entity, but a person who owns the business and is responsible for the debt. People and businesses in the IRS view are interchangeable.

This means that personal taxes apply to business. For federal income tax purposes, it is taxed at the general personal rate. However, Florida does not collect personal income taxes, so you do not have to pay income taxes on your business.

Sales Tax

Sales tax is a tax levied on goods or services, paid directly to the state in which the business operates. This is calculated by utilizing a percentage to the taxable price of the sale.

If sales tax is not collected at the time of purchase, it is related to the use tax levied on the use or consumption of taxed goods.

Florida applies a regular state sales tax rate of 6%, but some items may have their own sales tax rates, such as:

  • Rides Receipt (4 %)
  • Commercial Real Estate Leasing and Licensing (5.7 %)
  • Electricity (6.95 %)

There is also a optional sales vat rate that varies from county to county and applies to most transactions where sales taxes are levied. The registered sales tax dealer (you)collects VAT from the customer and pays it to the Florida Department of Tax.

If the sales tax and VAT apply to the transaction and the transaction falls between the full amount of $ 2, Florida uses the bracket system to calculate the tax for amounts less than $ 1.

Property Tax

Finally, there’s the Florida property tax, which, like the Florida tax code, is a bit of a strange beast.

According to the Florida State Constitution, all revenue from property taxes is allocated to local governments. This means that the state itself does not touch property taxes.

In addition, property taxes are based on the “rightful value”(that is, the fair market value) of the property, based on the appraiser’s assessment on January 1 of each year. Property taxes can be raised annually, but thanks to the “Save Our Homes” upper limit, the increase is limited to 3% of the previous year’s valuation.

However, Florida offers several property tax privileges, including a homestead exemption, a senior citizen exemption, four types of veterans exemption, a $ 500 exemption for widows and widowers who have not remarried, and an exemption for disabled homeowners.

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