Small business taxes can be confusing, and small business taxes can change depending on a number of factors. In fact, business taxes on the state level in Minnesota can change depending on your location, industry, how much money you make, and what kind of business entity you operate. We’ve put together this short guide on the types of taxes you might need to pay in Minnesota. We will also show you how we can help business owners like you stay legally compliant and in good standing.
Our Worry-Free Compliance Service can help you stay current with your Minnesota filing obligations.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses.
Step 1: Establish your Minnesota business’s corporate income tax obligations
Usually, the small business taxes your company pays will depend upon the type of business you operate. Business taxes in Minnesota may differ if your business is a corporation as opposed to a sole proprietorship, for instance. In most states, a corporation will be taxed at the state’s corporate income tax rate. However, if you operate your business as a limited liability company (LLC), partnership, S corporation, or sole proprietorship, these are all considered pass-through entities and may be taxed at the state’s personal income tax rate. Business taxes in Minnesota follow similar, but slightly different rules as compared to most states. So be sure to watch out for the surprises detailed below.
Minnesota corporations (sometimes called “C corporations”) are subject to Minnesota’s corporate income tax. This is also called a corporate franchise tax in Minnesota. In this context, however, Minnesota uses “franchise tax” instead of a corporate income tax.
Business taxes in Minnesota on C corporations consist of both a flat 9.8% corporate income tax and a 5.8% Alternative Minimum Tax (AMT) on income greater than $40,000. As a business owner, if you’ve ever paid AMT on your personal income taxes, Minnesota’s corporate AMT rules are very similar. Minnesota business owners can claim exemptions for net operating losses (NOLs) and certain other statutory exemptions.
Pass-through entities like LLCs, partnerships, and S corporations have a flat tax called a minimum fee. Any income that passes through to you individually may also be taxed at your personal income tax rate. Learn more about taxes and LLCs.
You can calculate this minimum fee from the total value of a business’s sales, property, and payroll. The business isn’t charged the minimum fee if the combined value is less than $970,000. If the combined value is more than $970,000, then the minimum fee gradually increases. If your business makes more than $39,000,000, then the fee maxes out at $9,770.
The Minnesota Department of Revenue offers great information for business owners about Minnesota small business taxes. If you don’t know where to turn, the Minnesota Department of Revenue’s resources for taxpayers may be able to help. The U.S. Small Business Administration also offers great resources for small business owners. These organizations can remind you that your personal taxes and business taxes may be due at different times during the year. Pass-through entities may even have to pay quarterly estimated taxes, so checking these additional resources can be especially helpful.
It’s also worth noting that even if you don’t earn any money and don’t owe taxes in Minnesota during a calendar year, you’ll likely still have to file a tax return. This document is often called a “zero return,” and is part of regular business compliance. Make sure to check with the Minnesota Department of Revenue if you have questions about zero returns.
Step 2: Determine your Minnesota business’s employment taxes
Employers in Minnesota need to consider withholding taxes from employees’ paychecks. Typically, these are called “withholding taxes” or “payroll taxes.” There is no set business tax rate in Minnesota for withholding taxes, as different withholding rates apply to different types of employees in different industries. If you have questions about how to properly withhold taxes, how to report withholding taxes, or where to send any fees — it’s best to consult with the Minnesota Department of Revenue or a certified tax professional.
Step 3: Establish your Minnesota business’s additional state tax obligations
As of 2021, Minnesota charges a 6.875% sales and use tax. Cities and counties can charge their own sales tax rates on top of this, so Minnesota small business taxes for sales tax can vary greatly. In fact, exemptions, refunds, payment due dates, and tax filing formats may vary if you need to file both state and local sales tax returns. Check with the Minnesota Department of Revenue and your local tax commissioner if your small business sells goods or services to ensure you have the most accurate sales tax information.
Minnesota small business taxes for unemployment insurance are calculated individually for each employer. As a result, your tax rate may change from year to year. It may also drastically differ from other businesses. The Minnesota Unemployment Insurance office can help you understand the factors that go into the calculation of your rate.
Not sure how to stay compliant? Learn more about legal compliance for small business owners.
Step 4: Prepare to file and pay your Minnesota small business taxes
Minnesota small business taxes are paid to the Minnesota Department of Revenue. Most types of payments and returns can be filed online using the department’s E-services portal. The Department of Revenue also allows in-person payments, however, be sure to check that your local tax office is open and accepting in-person visits before attempting to pay in person.
Some personal and business information you may need to file your business taxes in Minnesota include:
- Your social security number and home address;
- Business address and relevant public information (like date of incorporation, business registration number, if relevant);
- Your business’s employer identification number (EIN) and state tax ID;
- Any invoices and sales records from the last calendar year and fiscal year (if it differs from the calendar year);
- Your business expense records (and personal expense records if your business is a pass-through entity); and
- Any relevant receipts.
One way we can help at tax time is with our ZenBusiness Money App. This tool can help you keep track of invoices and make payments to vendors. Having everything in one place is convenient at tax time!
Do I need an accountant?
Savvy Minnesota business owners know that it’s best to call on professional accounting help rather than try to stumble through the numbers themselves. Nearly all small business owners hire accountants and tax preparers to ensure their books are kept neatly and taxes are done correctly. There are severe penalties for those who either don’t file their Minnesota small business taxes, or who make erroneous calculations in the fillings they do submit.
If this is your first time hiring an accountant, don’t worry. The Internal Revenue Service (IRS) has a guide on its website to help you understand tax preparer qualifications and give you the information to pick the right professional for your business.
How we can help
Our job is to help you keep your focus on your company while not getting distracted by business compliance issues like taxes. The ZenBusiness Money App can help you manage invoices and send payments, keeping all your documents in one place for tax time. If your business is still in the formation phase, our Minnesota LLC Formation and Minnesota Corporation Formation services make the process quick and simple!
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 a Minnesota small business make before paying taxes?
Calculating Minnesota small business taxes can be a complex formula based on income, deductions, and other items. An accountant or tax preparer may be able to give you some clear guidelines on how to best structure your return.
- What percentage does a Minnesota small business pay in taxes?
The percentage of your business income paid in taxes will depend upon your business type. It also depends upon your level of business income.
- How does a Minnesota small business pay taxes?
You can pay online through the Minnesota Department of Revenue’s e-services portal. In some locations, you may also be able to pay in person.
- Do I have to file taxes for my small business in Minnesota?
Even if your Minnesota company doesn’t generate any taxable income, you’ll still likely have to file a tax return in Minnesota.