If you are an Arizona business owner, you know that staying legally compliant is critical for success. One of the most important legal obligations that every business faces is paying taxes. We know it is confusing to keep track of different state taxes and when they’re due. Therefore, we’ve compiled a short guide to help you get started. Read on to learn about the types of small business taxes you’ll need to pay in the state of Arizona. You’ll also learn how our products and services can help make things easier at tax time.
If you’re looking for more comprehensive compliance help, our Worry-Free Compliance Service can help keep your business’s documents in one place. It can also keep you up to date on annual reports and other required filings.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses.
Step 1: Establish your Arizona business’s corporate income tax obligations
Every Arizona company how to file small business taxes in Arizona. Corporations and other business entities can electronically file their income taxes with the Arizona Department of Revenue (ADOR). How much your business will pay in state taxes depends on the form of the company. As of 2021, the corporate tax rate is the Arizona business tax rate of 4.9%.
For business entities called pass-through entities, the income earned by the company is passed through to the owners who then pay personal taxes on that income. Business income from pass-through entities such as S corporations, limited liability companies (LLCs), partnerships, and sole proprietorships is subject to the state’s tax on personal income.
A good source for current Arizona small business tax information is the U.S. Small Business Association (SBA). They have a comprehensive site providing information about Arizona’s business tax rates and how to file small business taxes in Arizona.
Arizona tax payments and filings are due by the 15th day of the fourth month following the close of the taxable year. If the due date for the return falls on a Saturday, Sunday, or legal holiday, the return is considered timely filed if it’s postmarked the next business day. All corporations required to make Arizona estimated income tax payments must make those payments by the 15th day of the 4th, 6th, 9th, and 12th months of their taxable year.
Step 2: Determine your Arizona business’s withholding taxes
The second major tax responsibility for Arizona businesses is the payment of employment or withholding taxes. An employer must withhold Arizona income tax from employees performing work within the state. The amount withheld from the employee’s wages is a percentage of the employee’s gross taxable wages. An Arizona employee’s gross taxable wages are the wages that meet the definition of wages contained in federal law. Usually, this is the dollar amount in box 1 of the employee’s federal Form W-2.
To compute the amount of tax to withhold from wages paid to employees, an employee must complete Arizona Form A-4, Arizona Withholding Percentage Election. If Form A-4 is incomplete, the employer must withhold 2.7% and pay that amount to the state. You can find the Arizona withholding tax procedure at azdor.gov.
Employers are required to pay their tax liability by electronic funds transfer (EFT) if the employer owes $500 or more for any taxable year beginning from and after December 31, 2020. Pay withholding taxes quarterly. The Arizona Department of Revenue maintains a current withholding payment due dates calendar on its website that you can consult.
Step 3: Establish your Arizona business’s additional state tax obligations
There are many other potential Arizona business taxes that you may need to keep track of. Arizona requires the payment of a transaction privilege tax (TPT). This is a requirement for businesses selling a product or engaging in a service in the state. If a business is selling a product or engaging in a service subject to TPT, it needs a license from the ADOR. It also needs a transaction privilege tax or business/occupational license from the city or cities in which the business is based and/or operates. The ADOR collects the tax for the counties and cities. Tax rates vary depending on the type of business activity, the city, and the county.
As of 2021, the TPT tax rate is 5.6%. Businesses with an annual transaction privilege tax and use tax liability of $500 or more during the prior calendar year must file and pay electronically. Failure to comply with the electronic filing and payment requirements may result in penalties.
Another tax to consider if your business has employees is Arizona’s unemployment tax. Arizona uses a “reserve ratio” system to determine the unemployment tax rates. If you’re a new employer, a tax rate of 2% is assigned for a minimum of two calendar years. After that, you may be eligible for a higher or lower tax rate depending on:
- The amount of taxes you have paid
- The amount of unemployment benefits paid to former employees and charged to you
- The average size of your annual taxable payroll
Unemployment tax payments are due on a quarterly basis. You can pay them electronically through the state.
Step 4: Prepare to file and pay your Arizona small business taxes
The next step is to prepare your tax filings and file your business taxes with Arizona. Arizona corporations pay their tax liability by electronic funds transfer (EFT) if the corporation owes $500 or more for any taxable year beginning from and after December 31, 2020. If you’re paying taxes for a prior year, you must file via ETF if you owe $5,000 or more. File online through the Arizona Department of Revenue after you create an E-file account with the state.
To provide all the necessary information on your Arizona business tax returns, you need to keep track of and compile all your business papers, such as receipts, accounting records, legal documents, etc. We can help you keep track of this documentation throughout the year with our ZenBusiness Money App.
Do I need an accountant?
Although there’s not a requirement to use an accountant or other tax professional, it’s still a smart idea. If your tax filing is late, incomplete, incorrect or not filed at all, it could cost your Arizona business a lot of money in fines, penalties, and interest payments. The IRS’s website has a simple guide that describes the various types of tax professionals to help determine which will best fit your business’s needs.
How we can help
We have a number of tools and services tailored to serve a small business’s needs. Our ZenBusiness Money App makes it easy for Arizona business owners to send professional invoices, get paid quickly, and keep track of their important payment invoices for tax purposes. You will have the tools necessary at your disposal to run your Arizona business efficiently and effectively. If you’re still in the formation process, our Arizona LLC Formation Service or Corporation Formation Service can help you get started.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
- How much can an Arizona small business make before paying taxes?
Estimated tax payments are required quarterly if the Arizona business’ income tax liability for the taxable year is $1,000 or more.
- What percentage does an Arizona small business pay in taxes?
The Arizona business tax rate for the taxable year 2021 is 4.9% of taxable income or $50, whichever is greater.
- How does an Arizona small business pay taxes?
Arizona business owners can file their tax returns and pay their tax liabilities through the Arizona Department of Revenue website.
- Do I have to file taxes for my small business in Arizona?
Yes, even if your Arizona business didn’t earn any income during the taxable year, a tax filing is still necessary. Speaking to an experienced business accountant will be helpful in determining what type of tax filing is necessary.