To run an Ohio business successfully, you need to know the cost of operations. At the core of this analysis is complying with business taxes at the federal, state, and local levels. Failure to comply, whether in filing, payment, or both, can result in crippling penalties and possibly threaten the future of your business. If filing state taxes has you feeling nervous, we’re here to help. Read on to learn more about the types of taxes you might face as an Ohio business owner, how and when to pay them, and which of our products and services can help make the process smoother when tax time 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.
Step 1: Establish your Ohio business’s corporate income tax obligations
Your business’s tax rate largely depends on its entity structure. Ohio imposes a tax on a business’s gross receipts. Ohio calls this a commercial activity tax (CAT) and it’s assessed against almost all businesses in Ohio having gross receipts in excess of $150,000.00.
Any business that is above that threshold must file a commercial activity tax return and pay a tax. The tax is a flat rate of $150 for receipts up to $1,000,000 and then .26% after that. For gross receipts below $1,000,000, Ohio requires CAT taxes to be filed and paid annually. For gross receipts above that amount, Ohio requires CAT to be filed and paid quarterly. The filing and payment deadline for an annual return is May 10th, and for quarterly returns it’s the 10th day of the second full month after the applicable quarter (e.g., first quarter returns and payments are due on May 10th).
You may wonder how your business structure affects its tax treatment. In a standard state corporate income tax structure, whether your business is a C corporation or a pass-through entity could make a significant difference. If the income passes directly through to you as an owner, then it’s taxed at your Ohio personal income tax rate. If it stayed at the corporate level, like in a C corporation, it’s taxed as income at the corporate level and then any earnings distributed to you would then again be taxed at your personal income tax rate. This is the classic “double tax” scenario. However, because in Ohio your business is required to pay a tax on gross receipts, and not net income, there are really no tax advantages for pass-through entities when it comes to state taxes.
Step 2: Determine your Ohio business’s employment taxes
All Ohio employers are required to withhold an employee’s individual income tax and any applicable school district taxes. The Ohio employment tax is called the employer withholding tax, and depending on the amounts to be withheld, the returns and payments are filed either quarterly or each month. Due dates are the 15th of the first month after the applicable reporting period (e.g., for quarterly reporting, due dates are April 15th, July 15, Oct 15, and Jan 15; for monthly reporting, the due date is the 15th of each month). The tax rate for withholding is progressive and can range from 0% to .04797%.
Step 3: Establish your Ohio business’s additional state tax obligations
As with other states, Ohio has additional state taxes that are assessed against businesses.
The first, and probably most expected, is the state sales tax. The Ohio sales tax starts at a base rate of 5.75% and is then adjusted upward by the local city or county sales tax.
Sales tax returns and payments are due on or before the 23rd day of the month after the applicable reporting period. Depending on the amount of revenue, volume sales taxes are paid either monthly or semi-annually. Be sure to check how Ohio expects your business to file and pay state sales tax.
Another common tax is the franchise, or privilege, tax. Essentially this tax is imposed upon businesses for the privilege of conducting business in a state. Ohio repealed its franchise/privilege tax in 2005.
Unlike the repealed privilege tax, Ohio still has an unemployment tax and requires employers to register with the Department of Job and Family Services as soon as they have an employee. The tax rate averages .027%, and returns and payments are made quarterly and due on the last day of the month immediately following the applicable reporting period (e.g., for the first quarter the return and payment is due on April 30th).
Ohio also levies an excise tax on fuel, alcohol, and cigarettes. Be sure to check the filing and payment requirements if you’re subject to this very narrow tax.
Step 4: Prepare to file and pay your Ohio business taxes
All your tax filings and payments are made with the Ohio Department of Taxation. Fortunately, Ohio has relaunched its online business filing portal where you can submit and pay your taxes online. As part of establishing good business practices, it’s important that your business take advantage of Ohio’s online filing and payment system.
Record keeping supports timely and accurate tax compliance. As such, many businesses make it a top priority to organize into one place all their important business tax records. Common supporting tax records would include:
- Customer invoices
- Vendor invoices
- Expense receipts (e.g., gas, vehicle repair, office supplies, etc.)
- Rent or mortgage payments
- Insurance premiums
While this list isn’t complete, it can give you an idea of what to consider when developing good supporting tax records. Properly tracking a business’s expenses and income is a vital part of this.
Do I need an accountant?
Deciding to engage professional services can be a very difficult decision for small businesses. But it can be complicated to learn how to file small business taxes in Ohio, and getting it wrong can be costly. Therefore, hiring a tax professional may be the right choice for your business.
Not only can a tax professional help you with compliance, but they can also advise you as to what actions to take to best reduce your tax liability and tax footprint. For instance, they can counsel you on the timing of the sale of assets, how to hire or engage employees or independent contractors, and what tax elections to take to reduce liability. On the flip side, not hiring a tax professional could put the business at risk of not filing properly, over or underpaying taxes, and missing deadlines. Each of these errors can be costly in fines and penalties.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses to learn more.
How we can help
Complying with Ohio small business taxes is a tangle. 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. The app allows you to easily send custom invoices, accept credit card and bank transfer payments, and manage your clients from an easy-to-use dashboard.
No matter what size your Ohio 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.
- How much can an Ohio small business make before paying taxes?
Ohio businesses must pay taxes on gross receipts in excess of $150,000. If you have employees, your business will have to pay unemployment insurance taxes and withholding taxes. In addition, if you sell goods you may have to pay a sales tax.
- What percentage does an Ohio small business pay in taxes?
There is no average tax rate since Ohio doesn’t have a corporate income tax. That said, the commercial activity tax (CAT), at its lowest bracket, is approximately $150. The CAT rates are listed on the tables at the Ohio Department of Taxation.
- How does an Ohio small business pay taxes?
You pay all taxes online through the Ohio Business Gateway portal.
- Do I have to file taxes for my small business in Ohio?
It depends. If you have gross receipts below $150,000 you won’t have to file and pay the CAT. However, if your business has employees, you will need to file state employment withholding and unemployment insurance taxes. If your business conducts retail sales, you need to pay state sales taxes. Finally, if you sell certain goods, such as alcohol or cigarettes, you may need to pay an excise tax.