By revenued
You can have the best products, the most efficient processes or the finest team — but if you don’t know how to manage your finances effectively, your business probably won’t be sustainable in the long run. Of course, understanding how to run the financial side of your business entails much more than just the decisions you make regarding your bank accounts. It also involves staying on top of your business taxes, from how to properly file to anticipating what you’re expected to pay as your business grows.
No matter how 2018 has gone for your company, the best way to start preparing for the upcoming tax season — other than tallying up those totals for your records — is to acquaint yourself with the 2018 federal tax rates. Business tax rates are affected by a wide variety of factors, and as such are subject to fluctuation. Here we’ll give you a bit of insight into what small business tax rate you’ll be facing next tax season.
In light of the Tax Cuts and Jobs Act of 2017, it’s no surprise that businesses are facing some changes when it comes to their tax filing this season. Signed into law in December 2017, the most impactful changes are some steep drops in the tax rate. Under this law, the nation’s federal corporate income tax rate was reduced from 35 percent to 21 percent. While this may seem like a respite for small businesses like yours, U.S.-based corporations must contend with another issue altogether.
Forty-four states also levy their own corporate income taxes, ranging from 3 percent in North Carolina to 12 percent in Iowa. When you take this into account, the nation’s overall statutory corporate income tax rate — including average state corporate income taxes — is back up to 25.7 percent. And the tax rate your business will face largely depends on which state you operate in.
Here’s a more detailed breakdown of combined federal and state corporate tax rates:
| Note: Combined rates include the ability for corporations to deduct state income taxes against federal taxable income. Weighted by population. | ||
| *State allows a deduction against taxable income for federal liability | ||
| State | State Corporate Tax Rate | Combined State and Federal Corporate Tax Rate |
| Alabama* | 6.5% | 25.1% |
| Alaska | 9.4% | 28.4% |
| Arizona | 4.9% | 24.9% |
| Arkansas | 6.2% | 26.1% |
| California | 8.8% | 28.0% |
| Colorado | 4.6% | 24.7% |
| Connecticut | 7.5% | 27.5% |
| Delaware | 8.7% | 27.9% |
| District of Columbia | 9.0% | 28.1% |
| Florida | 4.45% | 25.3% |
| Georgia | 5.7% | 25.7% |
| Hawaii | 4.4% | 26.1% |
| Idaho | 6.9% | 26.8% |
| Illinois | 9.5% | 28.5% |
| Indiana | 5.2% | 25.7% |
| Iowa* | 5.5% | 29.5% |
| Kansas | 4.0% | 26.5% |
| Kentucky | 5.0% | 25.7% |
| Louisiana* | 4.0% | 26.0% |
| Maine | 8.9% | 28.1% |
| Maryland | 8.3% | 27.5% |
| Massachusetts | 8.0% | 27.3% |
| Michigan | 6.0% | 25.7% |
| Minnesota | 9.8% | 28.7% |
| Mississippi | 5.0% | 25.0% |
| Missouri* | 6.3% | 25.4% |
| Montana | 6.8% | 26.3% |
| Nebraska | 7.8% | 27.2% |
| Nevada | 0.0% | 21.0% |
| New Hampshire | 8.2% | 27.5% |
| New Jersey | 9.0% | 28.1% |
| New Mexico | 5.9% | 25.7% |
| New York | 6.5% | 26.1% |
| North Carolina | 3.0% | 23.4% |
| North Dakota | 4.3% | 24.4% |
| Ohio | 0.0% | 21.0% |
| Oklahoma | 6.0% | 25.7% |
| Oregon | 7.6% | 27.0% |
| Pennsylvania | 9.99% | 28.9% |
| Rhode Island | 7.0% | 26.5% |
| South Carolina | 5.0% | 25.0% |
| South Dakota | 0.0% | 21.0% |
| Tennessee | 6.5% | 26.1% |
| Texas | 0.0% | 21.0% |
| Utah | 5.0% | 25.0% |
| Vermont | 8.5% | 27.7% |
| Virginia | 6.0% | 25.7% |
| Washington | 0.0% | 21.0% |
| West Virginia | 6.5% | 26.1% |
| Wisconsin | 7.9% | 27.2% |
| Wyoming | 0.0% | 21.0% |
| Average | 6.3% | 25.9% |
| Weighted Average | 6.0% | 25.7% |
As it stands, state and local income taxes remain fully deductible for corporations, meaning that you’ll actually be faced with a statutory tax rate that is markedly lower for each state. Select states even provide companies the opportunity to decrease this total even more by deducting some of their federal tax liability against their state liability.
When considered alongside the federal rate of 21 percent, marginal rates range from 21 percent (in states without any corporate income tax, like Texas) to 29.6 percent (in Iowa, with its 12 percent corporate tax rate).
Of course, these figures still aren’t written in stone and may change from year to year based on legal developments and updates to the tax code. Business taxes can be elusive, but by doing a bit of preliminary research, you’re positioning your company for an easier tax season. When you know roughly what to expect, you can begin planning your finances around your anticipated tax payment, and even minimize the amount you may owe the federal government. Of course, be sure to reach out to your tax advisor for further details tailored specifically to your business and its needs.
If you still have any questions about the federal business tax rates, feel free to reach out to us directly. After all, it’s our mission to provide business owners like you the tools you need to streamline how you manage your business.
For complete details or to sign up, call +1 (877) 662-3489, or complete our online form, and a friendly financial expert will get back to you.
Originally written in 2018. Most recently updated in March 2021.
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