Keeping your North Carolina business legally compliant means understanding and fulfilling your business’s tax obligations at the local, state, and federal levels. If this sounds scary, we’re here to help. Read our guide to learn more about the types of state business taxes you might need to pay as an North Carolina small business, how to pay them, and when they are due. Our Worry-Free Compliance Service keeps track of your business’s important filing and compliance deadlines and alerts you when a deadline is coming.
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Paying small business taxes is a reality that all North Carolina business owners must face. Making sure that you file your federal, local, and state taxes on time is a big part of keeping your business legally compliant, and critical for long-term success. However, many new business owners aren’t familiar with business taxes in North Carolina, and even the most experienced entrepreneurs still find the process intimidating. That’s why we created this short guide to North Carolina small business taxes. Read on to learn about the types of taxes North Carolina business owners may face, when and how to file them, and which of our products and services can make the process easier when the time comes.
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.
The first step in learning how to file small business taxes in North Carolina is understanding how businesses are taxed, which largely depends on its business entity structure. Businesses that are pass-through entities (sole proprietorship, partnership, corporation, S Corporation, limited liability company) don’t pay income taxes on profits or earnings. Instead, the business profits “pass-through” the company to the owner. Owners pay taxes on business income on their personal tax returns.
However, a corporation pays income taxes on earnings before owners receive any profits or dividends from the company. North Carolina charges corporations state income taxes. The North Carolina business tax rate is 2.5% for tax years beginning on or after January 1, 2019.
Net taxable income is the basis for the state corporate income taxes. Companies conducting business in other states need to allocate and apportion their income to calculate their business taxes in North Carolina.
Corporations with an income tax liability of $500 or more pay estimated income taxes. The payments are due during the fourth, sixth, ninth, and twelfth months of the taxable year on the 15th day of the month. Failing to pay estimated taxes results in an interest penalty.
The due date for filing business income tax returns is the 15th day of the fourth month after the end of the income year. However, a corporation may request a six-month extension to file an income tax return.
North Carolina requires employers to withhold state income taxes from employee payroll. All employers must complete Form NC-BR to obtain a North Carolina withholding identification number. Employers file withholding returns and pay withholding taxes through the North Carolina Department of Revenue.
The amount of withholding taxes deducted from an employee’s payroll depends on the employee’s N.C. Employee’s Withholding Allowance Certificate and the North Carolina tax tables. It’s the employer’s responsibility to obtain the certificate when hiring new employees to calculate the correct withholding rate based on the tax tables.
The amount of the withholding taxes determines the filing frequency. Payment of withholding taxes is either monthly or quarterly for most small businesses. Companies with large payrolls may file semi-weekly. The state also requires an annual withholding tax return from employers.
Small businesses may pay withholding taxes and file returns through the Online Filing and Payments System or mail. However, companies with an average of $20,000 or more in withholding taxes must pay by electronic funds transfer (EFT).
Not sure how to stay compliant? Learn more about legal compliance for small business owners.
Many states charge additional taxes. Your small business in North Carolina may have additional state tax obligations.
North Carolina imposes sales and use tax on goods sold within the state. Many local governments also impose a sales tax for items sold within their jurisdiction. Companies collect state and local sales tax to remit to the taxing authority.
The state sales tax rate as of October 1, 2020, is 4.75%. Counties add their tax rate to the state tax rate to calculate the total tax rate. Some items sold in North Carolina are subject only to state sales tax. Other items may be subject to a combined general tax rate or a miscellaneous rate. A small business owner is responsible for verifying the correct tax rate for goods sold and collecting that tax rate from consumers.
A list of who should register for sales and use tax is on the North Carolina Department of Revenue’s website.
A small business in North Carolina must pay unemployment insurance tax if its gross payroll is at least $1,500 in a calendar quarter or if it employs at least one person during 20 different weeks in a calendar year. In addition, other companies may be subject to unemployment tax. A complete list is available online at the NC Commerce website.
Companies register with the Division of Employment Security of the North Carolina Department of Commerce to file and pay unemployment taxes. Companies create an online account to manage their unemployment taxes.
Tax rates for unemployment insurance are based on an experience rating system. After an employer is eligible to receive a reduced tax rate, the state calculates the tax rate annually based on experience. Tax rates range from 0.06% to 5.760%.
Companies report wage and tax information by filing Quarterly Tax and Wage Reports. Quarterly reports are due on April 30, July 31, and October 31 for the prior quarter and January 31 for the previous year’s fourth quarter.
Some states charge businesses a franchise or privilege tax to conduct business within their state. North Carolina imposes an annual franchise tax on corporations authorized to do business in the state unless the company is specifically exempted under state law. The due date for franchise tax returns is the 15th day of the fourth month after the end of the income year.
The franchise tax rate for C corporations is $1.50 per $1,000 of the company’s net worth base. The minimum North Carolina business tax rate for franchise taxes is $35. The franchise rate for S corporations is $200 on the first $1 million of the corporation’s tax base and $1.50 per $1,000 over $1 million.
Excise taxes are charged on specific items sold within North Carolina. The tax is in addition to sales and use tax. Not all items are subject to an excise tax. Items subject to excise tax include, but are not limited to, cigarettes, cell phone plans, alcohol, real estate, and gasoline.
Before you prepare business tax returns, you need to gather documents containing the information needed to complete tax returns. This means that properly tracking income and expenses is crucial. Examples of documents you may need include, but are not limited to:
Our ZenBusiness Money App makes tracking income and expenses quick, easy, and efficient. We help you manage business finances to help grow your company and make tax time less frustrating and time-consuming.
Filing tax returns and paying taxes is more manageable if you file online. The North Carolina Department of Revenue (NCDOR) collects corporate taxes. Companies may pay corporate income taxes and franchise taxes online through the state’s eServices website. They may also pay withholding and sales tax online.
Companies must register with the NCDOR to use the eBusiness Center. Registration requires an NCID user ID and password. New business owners learning how to file small business taxes in North Carolina may benefit from reviewing the information provided in the eBusiness Center.
Professional accounting help can ensure that your small business taxes are done correctly, especially for new business owners who aren’t familiar with business tax laws and requirements. A mistake with your business taxes could trigger an audit and result in costly fines and penalties.
Managing your own 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.
We also provide resources and information to help small business owners. Popular topics include:
If your small business is still in the formation stage, our North Carolina North Carolina LLC Formation Services or Corporation Formation Services can help you get started.
Our goal is to help you grow your business and remain compliant with state laws for small businesses. If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses to learn more.
How much can a North Carolina small business make before paying taxes?
All corporations pay state income taxes on net taxable income. Unless your deductions are higher than your income, your company likely owes corporate income tax in North Carolina.
What percentage does a North Carolina small business pay in taxes?
North Carolina imposes income tax on corporations at a tax rate of 2.5% for tax years beginning on or after January 1, 2019. The state also imposes a franchise tax on businesses operating within the state. Companies with employees pay unemployment taxes.rnrnThe state charges an annual franchise tax for corporations based on the tax basis for S Corporations or net worth base for C Corporations.
How does a North Carolina small business pay taxes?
Online payments are the preferred method of paying small business taxes for most companies. Some small businesses may send payments by mail, but online payments are easier, quicker, and more convenient. Review the information for filing and payment taxes on the eServices website.
Do I have to file taxes for my small business in North Carolina?
Unless the business is a pass-through entity, almost all small businesses in North Carolina file tax returns and pay taxes. The tax returns and taxes due depend on the type of business structure, services and products sold, and other factors.
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.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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