Most small businesses in New Hampshire are required to file Business Profits Tax and New Hampshire Business Enterprise Tax. Are you confident you know what these NH business taxes are and how much the NH business tax rates may end up affecting you as a small business owner?
New Hampshire Business Profits Tax
If your business has gross receipts over $50,000, you must file a Business Profits Tax Return, a tax of 8.5% of the “net income” apportioned to New Hampshire. From this, you can then take a deduction for reasonable compensation for personal services. A typical small business owner who’s doing all the work in his small business will have no problem, justifying that 100% of his or her Schedule C income is reasonable compensation. However, there are all sorts of hidden traps here, so be certain you’re doing this right, particularly once we introduce the BET tax! Understanding tax terms is an essential part of being a business owner. Business Profits Tax in NH can be confusing and the rules misleading, and it’s important to use a tax preparation service that knows all the ins and outs.
New Hampshire Business Enterprise Tax
New Hampshire Business Enterprise Tax is a tax of .75% on your Enterprise Tax base of all wages (including Reasonable Compensation above), interest (including any Mortgage interest from a Home Office), and any dividends paid. This tax will also reduce dollar for dollar any Business Profits Tax you would owe. So, essentially the Business Enterprise Tax is a minimum tax to ensure that all small business owners pay something, particularly since so many avoid the clutches of the Business Profits Tax.
What we have presented is a simplified explanation of these taxes. Quarterly estimates are required to be made as well.
Do you know if your small business is affected by the New Hampshire Business taxes? Because we have no income tax in New Hampshire, many small business owners often don’t file these tax returns until several years later when the state comes knocking, and they will.
Also, planning can be extremely difficult with these two taxes, particularly where certain techniques often used in other states will backfire in New Hampshire, partly because New Hampshire does not recognize flow-through entities such as S Corporations.
New Hampshire State Business Income Tax
If you own a business and have been wondering, does New Hampshire have an income tax? The answer is not crystal clear. Although technically there is no statewide business income tax per se, there are taxes for specific types of businesses that equate to the same thing. For example, if you own a restaurant, car rental service, or lodging establishment, you will pay sales and use tax. The sales and use tax is like a New Hampshire Corporate Income Tax.
If you own a business property with land, you will also be responsible for property taxes. These taxes will be based on location, value, property size, and a state appraisal.
Businesses in New Hampshire also pay communication service taxes at a rate of 7% for things like VoIP, wireless services, and other communication mediums. If you own a communications business (e.g., wireless company) and accrue a tax liability of $10,000/month, you must pay 90% of these taxes to the state before the 15th of the month.
Insurance tax is another thing to be aware of. If you own an insurance agency, you will be responsible for this tax. Customers who pay for business insurance also pay tax on those products.
New Hampshire Business Profit Tax Rate Reductions
As of December 2018, the state of New Hampshire reduced the tax rates for two types of tax. The New Hampshire Business Profits Tax (BPT) rate went from 8.2% to 7.9%, and the New Hampshire Business Enterprise Tax (BET) rate dropped from 0.72% to 0.675%.
These tax cuts were a result of the state meeting revenue goals in 2017. Governor Sununu promises additional tax rate reductions for both of these taxes in 2020 and 2022. These efforts are aimed at making New Hampshire more competitive and desirable for new businesses.
Currently, New Hampshire’s business taxes make up 25% of the state’s revenue. That is higher than any other U.S. state. New Hampshire property taxes only account for 15% of the state revenue. Depending on the source, New Hampshire is ranked either 6th, 45th, or 32nd in terms of its business tax environment.
Many of our clients haven’t prepared these taxes or prepared them incorrectly. We provide small business tax planning in New Hampshire and often end up saving our clients a substantial amount in overpaid taxes. This is what Business Financial Confidence is all about. Let our accountants help you get on track with our Business Financial Confidence Map.