Pay Your Indiana Small Business Taxes

Businesses of all sizes must pay taxes at the federal, state, and local levels where they operate. States use business tax revenue to support public services, and tax rates can be higher in more densely populated areas. Ultimately, Indiana small business taxes are essential to understand because they affect your business’s bottom line. If you don’t keep up with your business taxes, the business will fall out of legal compliance. This can potentially incur costly penalties. But we are here to help. Read on to learn more about the types of state taxes you might face in Indiana, and how and when to pay them. We’ll also talk about how we can help support your business when tax season arrives.

If you’re looking for more complete compliance help, we’ve got that covered. When you sign up for our Worry-Free Compliance Service, we’ll keep all your legal documents on your dashboard. We’ll also remind you of important deadlines such as annual reports.

If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses.

Step 1: Establish your Indiana business’s corporate income tax obligations

Your Indiana business tax rate depends on your business structure. If you run a corporation or LLC that elects to be taxed as a corporation with the IRS, you’ll pay corporate income taxes to the Indiana Department of Revenue (DOR). Other business entities, including sole proprietorships, partnerships, and LLCs-taxed-as-partnerships, are called pass-through entities because the owners are responsible for paying business income taxes through their personal income taxes.

Corporate Income Tax

Indiana ranks #9 on the 2021 State Business Tax Climate Index because it’s one of only nine states with a single, flat-rate corporate income tax. Indiana made a mid-year adjustment in 2020, reducing the corporate tax rate from 5.5% to 5.25% of taxable income or “adjusted gross income tax liability” (AGIT). The rate will change again to 4.9% on July 1, 2021. The DOR requires corporations to file an annual return to report their AGIT by the 15th day of the 5th month following the close of the taxable year. If you file your return late, you must pay a penalty of the greater of $5 or 10% of the balance of tax due. In addition, if you pay late, you must pay interest on the balance due.

Corporations that expect to owe more than $2,500 for the tax year must make estimated tax payments quarterly by the 20th of the month. If you don’t make your quarterly payments, you face a 10% penalty. The DOR applies any overpayment to the next tax year. For average quarterly payments of more than $5,000, the DOR requires you to file and pay online. Otherwise, you can choose to file online, print a paper form, or use a voucher from the DOR.

Pass-Through Entities

As the owner, partner, or member of a pass-through entity, you are responsible for the business taxes and personal income tax. If you run a sole proprietorship, you only need to file an individual income tax return. You’ll pay the self-employed tax in lieu of withholding employment taxes from a paycheck. Owners of pass-through entities who don’t have income tax withheld and expect to owe more than $1,000 must make quarterly estimated tax installment payments. You will pay a penalty if you don’t pay estimated tax installment payments or underpay for the year.

Partnerships and limited liability companies (LLCs) must withhold state-adjusted gross income (AGI) tax at the individual income tax rate for any income distributed to nonresident partners. For 2020, the individual withholding rate is 3.23%. LLCs and partnerships need to file a partnership return, and each partner or member has to file an individual return. Resident partners will report their share of profit or loss (distributed or undistributed) on their individual returns.

You must file individual and partnership returns by April 15 of each year (or by the 15th of the fourth month following the end of the fiscal year). If you’re late filing your annual taxes, you’ll face a penalty of 10% of the amount due or $5, whichever is greater. You’ll also owe interest if you’re late paying the total tax.

Step 2: Determine your Indiana business’s employment taxes

When you hire employees, you must register for state withholding tax using your federal Employer Identification Number. The state and each county have varying tax rates that you will withhold from your employees’ wages. The state withholding rate is 3.23% for 2020. You’ll file a withholding tax return by February 1, even if you don’t have employees for that year. 

The DOR will evaluate your withholding and adjust how often you must pay (usually annually or monthly). If you file your return late, you’ll pay a penalty of $5 or up to 20%, whichever is greater. For each W-2, 1099, K-1 (tax documents for employees or contractors), you’ll owe $10 for each late document.

Step 3: Establish your Indiana business’s additional state tax obligations

If your business sells products or tangible items (including food and beverages), it must register for a Registered Retail Merchant Certificate and pay sales tax. You can register online using the same application you used to register for withholding taxes. Indiana’s sales tax is 7%. If you purchase items for use, storage, or consumption in Indiana and don’t pay sales tax to the seller, you must pay the DOR a 7% use tax. The DOR will update you with your frequency status, which may be monthly by the 30th of the month (less than $1,000), early by the 20th of the month (monthly for greater than $1,000), or annually.

Unemployment Taxes

You’ll also pay into the Indiana Unemployment Benefit Trust Fund for your employees based on their wages. You’ll file quarterly reports online with the Indiana Department of Workforce Development (DWD). Most new employers will pay 2.5% for the first four calendar years that they operate in Indiana. 

After the business operates for 36 months, the DWD reassesses your rate based on your usage of the unemployment system and potential liability for claim filing. The DWD assesses a 10% penalty and 1% interest if you’re late filing and paying unemployment taxes. The DWD may charge a 50% penalty if it finds the business committed fraud with the intent to evade payment.

Franchise and Excise Taxes

Indiana charges a franchise tax to financial institutions for the privilege of doing business in the state. Corporations providing utility services in Indiana need to pay the utility receipts tax in addition to income tax. In addition, Indiana charges excise taxes for specific products and industries. Businesses that rent accommodations for less than 30 days will pay an innkeeper’s tax. Those that rent motor vehicles will pay a motor vehicle rental tax. Finally, sales of gasoline, tires, and fireworks have their specific taxes and fees.

Step 4: Prepare to file and pay your Indiana business taxes

You can file and pay with the Indiana DOR online using the Indiana Taxpayer Information Management Engine (INTIME). There’s no fee to pay for using an electronic transfer, and INTIME is available 24/7, making it the most efficient way to pay. 

You’ll need to collect all your business records including invoices, contracts, and accounting records, to calculate your AGIT, which makes tracking expenses and receipts very important. If the prospect of collecting all your legal documents and receipts seems daunting, our ZenBusiness Money App can help. We’ll keep track of your invoices, and you can manage your business finances right from your phone. 

Not sure how to stay compliant? Learn more about legal compliance for small business owners.

Do I need an accountant?

Taxes are complicated. There are many forms to fill out and calculations to make. Most small businesses need professional accounting help to make sure their taxes are done correctly. It’s a good idea to consider having a professional handle your business’s tax filings. If you don’t file or make errors on the filings you submit, you’ll face costly penalties and owe interest.

How can we help?

Even if you hire a professional to help with your business taxes, you’ll still need to have all the business records to show your income and find deductions. While keeping up with the business’s invoices and receipts throughout the year sounds challenging, our ZenBusiness Money App can keep them all in one place, right at your fingertips. The app allows you to send custom invoices, accept credit card and bank transfer payments, and manage your clients from an easy-to-use dashboard.

Don’t tackle your Indiana small business taxes alone.

If you’re just forming your business, our Indiana Indiana LLC Formation Services or Corporation Formation Services can help you get started.

When you use our business services, our team of experts will be there for you every step of the way.