Even though Alabama ranks with one of the lowest state-level payroll taxes, the average combined state and local taxes is 9.42%. The state income tax rate is 2.00% to 5.00%. Alabama has a 6.50% corporate income tax rate. Alabama is accessible where you, as an employer, can run your company’s payroll taxes through only one state form.
However, most businesses with employees can expect to pay a franchise tax, income tax, withholding tax, and unemployment insurance tax. Business owners of sole proprietorships, partnerships, and pass-through entities pay business income taxes through their personal tax returns. Alabama income tax returns and payments are due on April 15. If the deadline falls on a weekend or holiday, it’s moved to the next business day. Income tax returns can be submitted electronically or by mail.
The Alabama business privilege tax return and payment are due at the taxpayer’s corresponding federal income tax return or two and one-half months after the taxpayer registers to do business in Alabama. Business entities are liable for the business privilege tax for each year during legal existence, regardless of activity.
S corporations pay a 6.5% state tax rate on net income. They must also pay the business privilege tax and file state tax documents. Local sales taxes range from 0% to 7%. Currently, combined sales tax rates range from 4% to 11%. As a seller, you collect and pass sales tax along to the Department of Revenue.
Income Tax administers taxes including individual income, business privilege, corporate income, partnerships, S-Corporations, withholding, and more. Sales tax is paid to the state or local government on certain goods and services. Alabama first adopted it in 1936. Rates have risen to 4%, plus local taxes from 0% to 7%.
Taxes for LLCs in Alabama
Employers in Alabama pay taxes to cover unemployment payments for eligible employees. The 2023 tax rates vary from 0.2% to 5.4%. Franchise tax applies to LLCs in Alabama. It is paid at the Comptroller office. Also called privilege tax, its rate depends on the income amount. Rate: $0.25 to $1.75 per $1,000. The state offers low income and sales taxes. Moreover, Alabama has low living costs and LLC privileges.
Income tax in Alabama is paid by LLC members. Owners pay self-employment tax on profits. Owners pay state income tax on profits minus deductions. Some LLCs pay sales tax on products. Employers pay payroll tax on employee salaries.
Costs to Form an Alabama LLC
To register an LLC in Alabama, you must pay fees and taxes. Forming an LLC costs less than other structures. However, you must pay deductible fees and charges to the state: name fees, filing fees, franchise and sales taxes if applicable. Here are the main costs to form an Alabama LLC:
- Name reservation fee
- Name filing fee
- LLC filing fee ($200)
- Franchise Tax
- Sales Tax
Incorporated businesses and LLCs pay 6.5% Alabama corporate income tax. File returns by your fiscal year’s due date. LLCs don’t pay taxes directly due to “pass-through” status. Instead, revenue passes to members, who report individually. Members pay 15.3% federal self-employment tax. Alabama LLCs pay $100 minimum business privilege tax. Other taxes include state income and sales taxes.
General Business Taxes
The form of business you operate determines what taxes you must pay and how you pay them. The following are the five general types of business taxes: Income Tax, Estimated Taxes, Self-Employment Tax, Employment Taxes, and Excise Tax.
Income Tax – All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form you use depends on how your business is organized.
The taxes your business is liable for will depend on your business’s structure and activity. A sole trader or partnership will pay income tax, USC and PRSI on profits, while a limited company will pay corporation tax.
Reducing Taxable Income for Small Businesses
How can a company pay less tax? 5 Ways for Small Business Owners to Reduce Their Taxable Income:
- Employ a Family Member
- Start a Retirement Plan
- Save Money for Healthcare Needs
- Change Your Business Structure
- Deduct Travel Expenses
Limited companies pay Corporation Tax on their profits (minus any reliefs they can claim). Currently, the rate is 19% and plans to cut this to 17% have been put on hold.
Some businesses pass their earnings and losses to their owners, who pay income taxes on their share of the business’s taxable income. These are called "pass-through" taxes. Businesses that are pass-through tax entities: Sole proprietorships and Limited liability companies.
If your business has an aggregated annual turnover of at least $75,000, you must register for GST. You can register for GST through the ATO’s Business Portal. If you are registered for GST, you can claim an input tax credit for any GST you paid on goods or services you purchased in the course of carrying on your business.