Illinois Small Business Tax Laws
Posted by Molly
Illinois, like most states, has outlines certain laws that govern the way small businesses can operate. The state imposes an income tax on every business that earns or receives income in Illinois. It is based on the federal income tax code. You must register with the Illinois Department of Revenue if you conduct business in Illinois, or with Illinois customers. This includes sole proprietors, exempt organizations, and government agencies withholding for Illinois employees. The type of activities your business engages in will determine what taxes you are responsible for paying.
Sales tax, for example, is 6.25 percent on most items; so if you are selling items from your business, you must collect and pay that tax. The tax on food, drugs, and medical items is one percent. And, you may not realize this—there is a state law about bingo! It pertains to both a state bingo tax as well as the related licensing fee. In addition to bingo, there is a state racing privilege tax and a riverboat gambling tax. There may also be some industry-specific laws; you can check with the Department of Revenue to be sure.
S corporations pay 1.5 percent “replacement tax” in lieu of regular income tax. The tax is paid at the shareholder level. That is because the income from an S corporation is paid to the shareholders.
Corporations must pay a 4.8 percent income tax and a 2.5 percent replacement tax. This applies to exempt organizations as well, except exempt organizations that are formed as a trust pay 3.0 percent income tax and 1.5 percent replacement tax.
| Partnerships pay 1.5 percent replacement tax. Partnerships do not pay the regular Illinois income tax. Instead, income from a partnership is passed on to the partners, and the partners have to list this income in their federal adjusted gross income, for individuals, or federal taxable income for other taxpayers. |
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