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Taxation for small businesses can be quite simple or very complex, depending on the size, business structure and type of operation. The following list outlines the major taxes with which a business must be concerned. Tax liability of each business will be different.
Every individual, partnership, corporation, trust and estate residing in Illinois earning or receiving income in Illinois must pay an income tax based on net income. A replacement tax is also applied to the net income of partnerships, corporations and trusts. S Corporations are subject only to replacement tax.
Sole Proprietors must pay individual income taxes on earnings from the business.
Partnerships and Limited Liability Companies must pay taxes on the distributive share of each partner or owner's income. In addition, Illinois has a replacement tax that applies to partnerships.
Corporations must pay a corporate income tax and replacement tax which is administered and collected by the Illinois Department of Revenue (IDOR). In addition, corporations are assessed a franchise tax each year based on their paid-in capital and a Corporate Personal Property Tax Replacement Income Tax. Corporate and franchise taxes are administered and collected by the
Secretary of State's Office.
Use Tax is imposed directly on the purchaser for the privilege of using and consuming tangible personal property in Illinois that has been purchased anywhere. Illinois retailers pay the Retailers' Occupation Tax (ROT) and, by law, reimburse themselves for the tax by collecting Use Tax from customers, based on the selling price of the tangible personal property. The business can keep 1.75% of the taxes collected for acting as an agent for IDOR (if tax is paid in a timely manner).
Service Occupation Tax (SOT) is imposed directly on the receipts from the selling price of any tangible personal property transferred as part of a sale of service, if the cost to the service person is 35% or more of the total charged.
Service Use Tax is imposed directly on the purchaser and is based on the selling price of the property transferred incident to a sale of service. The Service Use Tax is intended to reimburse the service person for his/her SOT liability.
All for-profit real estate owners are required to pay property taxes. The property tax rate is determined by local taxing districts and is paid to the township or county tax collector in the year following assessment.
Certain taxes must be withheld from employee wages and remitted to the government. These include state and federal income taxes, FICA (Social Security) and Medicare. You may be required to register with both the federal government and the State of Illinois for tax withholding purposes.