Iowa small business taxes

Pay Your Iowa Small Business Taxes

Most small businesses are required to pay state taxes. Learn about your Iowa business taxes and how we can help you stay compliant.

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If you run an Iowa business, you likely already know that you need to pay taxes to stay legally compliant. It’s important to pay all the business’s federal, state, and local taxes on time to avoid late fees and other penalties. Worrying about taxes can certainly cause the most experienced business owners anxiety, but we are here to help. This short guide will outline the types of state taxes you might face as an Iowa small business owner, as well as detail the products and services that can help you keep your business organized and ready when tax season comes around.

If you need more complete legal compliance help, check out our Worry-Free Compliance service, which keeps your business documents organized and can help keep you on track with required business filings such as annual reports. If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses..

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Step 1: Establish your Iowa business’s corporate income tax obligations

The first step is to determine whether the state requires your business to pay corporate income taxes, which largely depends on its entity structure. If not, you’ll pay income taxes on your individual income tax return. The due date for income taxes depends on your business’s fiscal year.

Corporations

Iowa requires all corporations registered in the state or receiving income from property within the state to pay a corporate income tax. If an Iowa multi-member LLC elects to be taxed as a corporation, it will pay the corporate income tax. Corporations and LLCs taxed as corporations will pay an estimated income tax quarterly. If the corporation’s taxable income was $0 to $100,000, its corporate income rate is 5.5%. For taxable income between $100,001 and $250,000, the rate is 9%. For taxable income over $250,000, the corporation will pay a 9.8% income tax. 

Pass-Through Entities

Sole proprietorships, partnerships, and most limited liability companies (LLCs) are pass-through entities. The business doesn’t pay income taxes. Rather, the taxes are “passed through” to the owners to pay on their individual returns. Iowa requires the owners of pass-through entities to pay income taxes by making estimated tax payments quarterly. Your individual tax rate can range from 0.33% to 8.53%, depending on your taxable income. In addition, Iowa requires partnerships and LLCs taxed as partnerships to report their income on a partnership income tax return. This gives the partnership the option of paying income tax for a nonresident partner if the partner isn’t otherwise required to file an Iowa tax return.

Due Dates and Penalties

All entities must pay estimated tax payments quarterly to the Iowa Department of Revenue. Individual income tax returns are due on April 30 following the tax year. Corporate tax returns must be filed by the last day of the 4th month after the close of the fiscal year. To be timely, you can submit electronic payment transactions prior to 4 PM on the due date. If you’re filing by mail, the payment must be postmarked on or before the due date. If you’re filing late, you’ll pay a 10% penalty unless you pay 90% of the business’s tax due by the due date. 

Step 2: Determine your Iowa business’s employment taxes

If your business has employees, you’ll need to file withholding taxes. Withholding taxes are the income taxes you collect from your employees’ paychecks. The amount of tax to collect is calculated using the Iowa Withholding Tax Tables based on the pay schedule and the employee’s allowances on their W-4. You can find the tables and pay your withholding taxes online. Depending on the amount of tax collected, you’ll pay withholding tax deposits quarterly, monthly, or semi-monthly. By February 15th each year, you’ll file a Verified Summary of Payments Report (VSP) and submit your W-2s and 1099s, which Iowa requires you to file online. 

Step 3: Establish your Iowa business’s additional state tax obligations

When you register your business in Iowa, you’ll need to determine if you need a sales or use tax permit and an unemployment tax account. Depending on what business activities you’ll engage in, you may need to pay franchise and excise taxes. This step will help you understand each of these taxes and when to pay them.

Sales and Use Tax

If your business makes retail sales of tangible personal property, services, or specified digital products in Iowa and has a physical presence in the state (or doesn’t have a physical presence but makes more than $100,000 in gross revenue from Iowa sales), business taxes in Iowa include a retail sales tax. If your business doesn’t have a physical presence in the state and has less than $100,000 in gross revenue from Iowa sales, your taxes include a retail use tax. 

Iowa’s state sales and use tax rate is 6%. Many cities and counties also have a 1% local option tax, which the state distributes from your annual tax return.  In addition, if your business regularly purchases taxable goods or services for its own use in Iowa from an out-of-state source not collecting Iowa tax, you must pay a consumer’s use tax of 6%. You can register for your sales and use tax permit online using the same application used for withholding taxes.

Unemployment Insurance Tax

When your business has employees, Iowa requires the business to pay unemployment taxes. You’ll register online with Iowa Workforce Development (IWD). During November, the Unemployment Insurance (UI) Division will mail your Notice of Tax Rate indicating your tax rate for the coming year. The tax rate can range from 0% to 9% of your business’s paid wages. Iowa requires employers to submit quarterly UI contribution reports online. You’ll pay UI tax on each employee’s wages up to the taxable wage base.

Franchise and Excise Taxes

Some states charge a franchise tax for the privilege of doing business in the state. Iowa charges a franchise tax only on the income of state banks, national banking associations, trust companies, federally and state-chartered savings and loan associations, financial institutions chartered by the Federal Home Loan Bank Board, and production credit associations. Excise taxes are special taxes on specific goods or activities. Iowa charges additional taxes on the sale of tobacco, fuel for motor vehicles, water service, and rental cars.

Step 4: Prepare to file and pay your Iowa business taxes

You can file income taxes with the Iowa Department of Revenue online using eFile & Pay. You can also print a form and deliver it in person or by mail. Make sure it gets postmarked before the deadline. Iowa doesn’t charge a fee to file online, so using eFile & Pay is the most efficient way to file. In the last three fiscal years, over 50% of corporations filed their returns online.

To get ready to file, you’ll need to compute your net income. Collect your receipts, accounting records, and legal documents. You’ll need to report your gross receipts, net dividends, exempt interest, accounts receivable interest, rent, royalties, capital gains, and ordinary gains. Your net income will determine your tax rate. You can use our ZenBusiness Money App to help keep your business’s invoices and finances organized and at your fingertips whenever you need them.

Not sure how to stay compliant? Learn more about legal compliance for small business owners.

Do I need an accountant?

Because of the complexity, most small businesses do need professional accounting help to make sure their taxes are done correctly. If you don’t file, or if you miscalculate your tax return or estimated tax, you’ll face late fees and interest. So it’s a good idea to consider hiring a professional to help. You can read up on tax return preparer credentials and qualifications on the IRS’s website.

How we can help

Running your own Iowa business takes an extraordinary amount of hard work and dedication. With so much on your plate already, worrying about your taxes can make things feel even more complicated. But we are here to help with the ZenBusiness Money App for invoicing and payments. This helps you to easily send custom invoices, accept credit card and bank transfer payments, and manage your clients from an easy-to-use dashboard.

If your small business is still in the formation phase, our Iowa LLC Formation Services and Corporation Formation Services can help you get started.

No matter what size your business is or what stage, we have the tools you need to help your business succeed.

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.

FAQs

  • How much can an Iowa small business make before paying taxes?

    All Iowa businesses that generate taxable income must pay taxes to the Department of Revenue.

  • What percentage does an Iowa small business pay in taxes?

    Your Iowa small business tax rate can range from 0.33% to 17%, depending on the type of business and the business activities it engages in. All corporations must pay a corporate income tax. The corporate tax rate can change yearly. For the 2021 tax year, corporations with taxable income between $0 to $100,000 will pay a 5.5% tax. For $100,001 to $250,000 taxable income, the rate is 9%. If taxable income was over $250,000, the rate is 9.8%. Owners of pass-through entities will calculate their income tax using the individual tax tables (IA 1040), which can range from 0.33% to 8.53%. In addition, retail businesses will pay a sales/use tax of 6% to the state. Some municipalities have an additional local sales tax of 1%. If you have employees, you must also consider withholding taxes and unemployment insurance taxes.

  • How does an Iowa small business pay taxes?

    You can pay your business taxes online using ACH Debit or electronic payment through the Department of Revenue’s eFile & Pay. You can also pay using a check if filing by mail.

  • Do I have to file taxes for my small business in Iowa?

    Yes, all Iowa businesses must file an annual tax return. If you had no sales for your filing period, you must still file and show $0 in sales.

Small Business Tax Information by State

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