Virginia Business Tax Rate: Everything You Need to Know
One thing to know about Virginia business tax rates is that for the most part, smaller companies are not subject to VA tax in relation to income or net worth.3 min read
The most important thing to know about Virginia business tax rates is that for the most part, smaller companies are not subject to Virginia tax in relation to income or net worth. Virginia does, however, have an income tax for C corporations, and if you're a business owner receiving income from any type and size of company, you should declare that income on your personal tax forms to the IRS.
Tax Rate for 5 Different Virginia Business Types
Virginia, like most states, distinguishes between the rates taxed for traditional, or C-type, corporations and other businesses. Most other types of businesses are pass-through entities. This term means that rather than the business paying income tax, the tax burden is passed on to owners, who are taxed at the level corresponding to their personal finances, typically at rates between 2 to 5.75 percent.
- C corporations in Virginia are taxed based on net income at 6 percent, though there are some exceptions. For example, telecom companies and electricity providers could be taxed differently.
- S corporations are considered pass-through entities, so it is not usually expected for one to file a separate federal income form. In this case, each shareholder will file the income in their own personal federal income tax form. This applies even if the income was not distributed to the shareholders before filing.
- LLCs, or Limited Liability Companies, are also considered pass-through entities. For this reason, the company is not subject to pay income tax at the federal or state level. Individual members will pay taxes on the income distributed to them. Now, if you elect to fill out Form 8832 and have your LLC classified as a corporation, that's another story, and the company would be required to pay Virginia's franchise tax.
- Partnerships, again, are entities considered to have a pass-through structure, meaning they will not be taxed at the federal or state level. Each individual partner will file the income they receive from the company on their personal return.
- Sole Proprietorship means you are the only owner, and you will pay taxes to the state and federal government on the income you receive from the company's activities.
If you will be paying income taxes from a pass-through business, keep in mind that any Virginia tax is deductible from your gross income when you are filing federal tax returns.
When to File Taxes
For corporations, the due date for filing returns is four months and 15 days after the end of the company's tax year — typically April 15 if the tax year corresponds to the calendar year.
For S corporations and LLCs, though you are not expected to pay state taxes as a company, you should always file a tax return for informational purposes.
Other Types of Virginia Business Tax
Income tax isn't the only kind of taxes business are required to pay. Here are other obligations you should keep in mind when doing business in Virginia.
- Sales and Use Tax: Any sale of products or lease of equipment, furniture, or supplies will require payment of a 5 percent state tax and an additional 1 percent for local tax, for a total of 6 percent sales tax collected from consumers.
- Workers' Compensation Insurance: Though not technically a tax, Virginia requires employers who have more than three employees on their regular payroll to acquire workers' comp insurance with a private insurance provider. Other options include receiving self-insurance certification from the Virginia Workers' Compensation Commission or becoming a member of a licensed association providing group self-insurance.
- Unemployment Insurance Tax: This tax is applicable if you employ at least one person for 20 or more weeks during one calendar year or if any employee earns at least $1,500 during one quarter. The rates for this type of tax range between 0.1 percent and 6.2 percent of the first $8,000 earned by an employee each year.
If your company is in Virginia but your market covers several states, you'll likely be liable to pay taxes in those states. Conversely, if you're doing business in Virginia but your company is physically located in another state, you may be responsible for paying taxes to Virginia. Tax regulations in either of these circumstances can be complex. If this is you, we recommend you seek advice from a tax professional.
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