Sunshine State Startup: A Comprehensive Guide to Starting A Business in Florida

Key Takeaways for starting a business in Florida:

• Florida is considered a business-friendly state due to its low tax burden, absence of personal income tax, and capital gains tax. The state government actively supports business growth and provides incentives, making it attractive for startups and established companies. However, regulated industries may have specific taxes and fees.
• Sales and Use Tax is applicable in Florida, requiring businesses to register as a sales and use tax dealer. Different filing and payment frequencies apply based on the amount of sales tax collected. Software-as-a-Service (SaaS) generally does not have sales tax.
• Corporate income tax is required for all corporations, Limited Liability Companies (LLCs), and partnerships operating in Florida. Having a mailing address in Florida does not automatically trigger corporate income tax; however, businesses operating within the state are generally subject to it.
• Tax obligations for international business owners in Florida vary based on factors such as business type, structure, activities conducted in Florida, and tax treaties between the home country and the United States. Federal tax laws, state-level taxes and fees, withholding taxes, and additional reporting requirements should be considered.
• Florida Corporate Income/Franchise Tax Return (Florida Form F-1120) is filed annually, even if no tax is due. The due date is based on the corporation’s tax year and is generally the 4th or 5th month following the close of the tax year. Late filings may incur penalties.

Is Florida a Business-Friendly State?

Florida is often regarded as a business-friendly state due to its low tax burden, pro-business policies, and supportive entrepreneurial ecosystem. There are no personal income tax, capital gains or death taxes. The state government actively encourages business growth and offers several incentives, making it an attractive destination for startups and established companies alike.

How do you start a Business in Florida?

Starting a business in Florida involves several steps, which may vary depending on the type of business you want to establish. There is a combination of legal, financial, and operational steps which include selecting a business structure, registering your business with the Florida Division of Corporations, obtaining necessary licenses and permits, and registering for state and local taxes. Here is a general outline of the process:

1. Register Your Business: Register your business entity with the Florida Division of Corporations. File the appropriate formation documents, such as Articles of Incorporation for corporations or Articles of Organization for LLCs. Pay the required filing fee.
2. Obtain Federal and State Tax IDs: Obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This unique identifier is necessary for federal tax purposes. Additionally, register for state and local taxes with the Florida Department of Revenue.
3. Acquire Necessary Licenses and Permits: Identify the specific licenses and permits required for your business activities. Visit the Florida Department of Business and Professional Regulation website or use their License and Permit Check tool to determine the permits applicable to your industry and location.
4. Set Up Business Banking: Open a separate bank account for your business to keep personal and business finances separate. This will facilitate accounting, tax reporting, and financial management.
5. Understand Employment Obligations: If you plan to hire employees, familiarize yourself with employment regulations and obligations, including workers’ compensation insurance, unemployment insurance, and federal and state payroll taxes. Determine whether you need to establish a payroll system or engage a payroll service provider.
6. Obtain Business Insurance: Assess the insurance needs of your business, such as general liability insurance, professional liability insurance, property insurance, or workers’ compensation insurance.
7. Set Up Record-Keeping Systems: Establish a record-keeping system to track income, expenses, invoices, and receipts. This will help with financial management, tax reporting, and compliance. Consider using accounting software or hire a professional bookkeeper to ensure accurate record-keeping.

It is also recommended to choose a dependable registered agent whom can be responsible for the filings with the Secretary of State, especially if your primary entity is not located in Florida

Is there a corporate income tax in Florida?

Unless a small business is set up as a C corporation, Florida does not impose state income taxes on it. That means the S corps, LLCs, and sole proprietorships are tax exempt. For corporations, state taxes in Florida are still low compared to most states. The standard corporate tax in Florida on federal taxable income is 5.5%, but exemptions often lower a corporation’s effective tax rate significantly. A corporation is required to pay the higher amount of the standard rate minus all exemptions and credits, or an alternative minimum tax rate of 3.3%.

As of 2019, under both methods, the standard rate and the alternative minimum tax, the first $50,000 in income is exempt from Florida’s corporate tax. A Florida corporation must remit its income tax on April 1 if it uses the calendar year as its tax year or on the first day of the fourth month after its tax year ends.‍

Does having an address in Florida trigger corporate income tax?

Having a mailing address in Florida does not automatically trigger corporate income tax or registration requirements. However, it is crucial to comply with the state’s laws and regulations regarding business operations, regardless of your mailing address. If your business is physically located in Florida and conducts business activities within the state, you will generally be subject to Florida’s corporate income tax.

Does Florida have a Franchise Tax? 

Unlike some other states, Florida does not levy a franchise tax on businesses. This further reduces the tax burden for businesses operating in the state. However, it’s worth noting that certain regulated industries, such as banking and insurance, may be subject to specific taxes and fees.

What is Florida’s Sales & Use Tax?

When it comes to Sales and Use Tax, the business needs to register as a sales and use tax dealer. These taxes apply to the sale, rental, lease, or license to use goods, certain services, and commercial property. Sales and Use Tax is to be collected at the time of each sale and is due to the Florida Department of Revenue at the end of each reporting period. How often you file and pay depends on the amount you collect in sales tax, as follows:

• Monthly: More than $1,000
• Quarterly: $501-$1,000
• Semiannually: $101-$500
• Annually: $100 or less

Florida generally does not require sales tax on SaaS companies. Florida’s laws and regulations do not specifically address SaaS businesses, however, Florida’s Department of Revenue has held that SaaS is not subject to sales tax and a ruling has been issued addressing SaaS taxability. Florida defines software services as those which are provided by the taxpayer to the end-user through the Internet, telephony or private network, on a rental, subscription or service basis.

In the advisement, Florida states that the sale of subscriptions to software and the sale of cloud-computing services are not subject to Florida sales tax so long as they are delivered electronically and there is no tangible product. An additional advisement states that information technology infrastructure intended for computing, storage or data transfer are exempt from sales tax as well.

What are the Tax Obligations for International Business Owners?

Tax obligations for international business owners in Florida can vary depending on various factors, including the type of business, the structure of the business, the nature of the activities conducted in Florida, and any tax treaties between the home country of the business owner and the United States. Here are some general considerations:

1. Federal Taxes: International business owners operating in Florida are generally subject to the same federal tax laws and requirements as domestic businesses. This includes income tax on profits earned in the United States, employment taxes, and any other applicable federal taxes.
2. State Taxes: As mentioned earlier, Florida does not impose a state income tax on individuals or businesses. However, there may be other state-level taxes and fees, such as sales tax, property tax, or corporate taxes on certain types of businesses.
3. International Tax Treaties: The home country of the business owner may have a tax treaty with the United States that can affect their tax obligations. Tax treaties can provide provisions for the avoidance of double taxation, specify the taxing rights of each country, and offer potential tax benefits for certain types of income or activities.
4. Withholding Taxes: If the international business owner earns certain types of income from U.S. sources, such as dividends, interest, royalties, or rents, there may be withholding requirements.
5. Reporting Requirements: International business owners may have additional reporting requirements, such as filing certain forms with the Internal Revenue Service (IRS) to disclose foreign financial accounts (FBAR), foreign-owned corporations (Form 5472), or other international tax-related forms.

How does having Employees and Independent Contractors impact my tax in Florida?

Having an employee in Florida may trigger corporate income tax obligations for your business. However, the employment status of individuals working for your company, such as independent contractors, can impact tax liabilities. Generally, if an individual is classified as an employee, the business may be responsible for withholding and paying payroll taxes. On the other hand, independent contractors are typically responsible for their own tax obligations. It is crucial to understand the distinctions and comply with relevant tax regulations.

How do I close my business in Florida?

Closing a business in Florida involves several important steps and considerations. While the specific requirements may vary based on the type of business and its legal structure, here are the general steps to follow to close a business in Florida:

• Notify the Appropriate Parties: Inform key stakeholders, such as employees, partners, clients, suppliers, and any relevant government agencies, about the decision to close the business. This includes canceling or transferring contracts and notifying customers about the closure.
• File Dissolution Documents: If your business is a legal entity, such as a corporation or LLC, you will typically need to file dissolution documents with the Florida Department of State. The specific forms and requirements may vary depending on the entity type. For example, corporations may need to file Articles of Dissolution (Form CR2E047), while LLCs may need to file Articles of Dissolution (Form LLC-35.05).
• Settle Outstanding Obligations: Before closing the business, ensure that all outstanding obligations are resolved. This includes paying off debts, outstanding taxes, and any remaining bills. It’s important to close bank accounts and cancel any subscriptions or services associated with the business.
• Notify Tax Authorities: Inform the IRS and the Florida Department of Revenue about the business closure. File the necessary tax forms, such as the final federal tax return (Form 1120 for corporations, or Schedule C for sole proprietorships) and the final state tax return (Form F-1120 for corporations, or Form DR-15 for sales tax).
• Cancel Business Licenses and Permits: Contact the appropriate licensing agencies, local government offices, and regulatory bodies to cancel any business licenses, permits, or registrations that are no longer needed.
• Inform Employees: Comply with employment laws by providing proper notice to employees, paying final wages, and addressing any outstanding employment-related matters. Also, follow any required protocols for terminating employee benefits.
• Address Legal and Financial Matters: Consult with an attorney and an accountant to ensure that all legal and financial matters related to the business closure are handled appropriately. This may include settling legal disputes, completing final financial statements and all tax filings.

When are Corporate Income Tax Returns Due in Florida?

Corporate income tax is reported using a Florida Corporate Income/Franchise Tax Return (Florida Form F-1120 PDF Icon). Corporations must file Florida Form F-1120 each year, even if no tax is due. The due date is based on the corporation’s tax year.

Generally, Florida Form F-1120 is due the later of:

1. For tax years ending June 30, the due date is on or before the 1st day of the 4th month following the close of the tax year; or
   For all other tax year endings, the due date is on or before the 1st day of the 5th month following the close of the tax year (e.g., Florida Form F-1120 is due on May 1, 2017, for a taxpayer with a taxable year end date of December 31, 2016).
2. The 15th day following the due date, without extension, for the filing of the related federal return for the taxable year.

If you file your return late, a penalty of 10% of any unpaid tax due with the return for each month or fraction thereof that the return is late, not to exceed a total penalty of 50% of unpaid tax, is charged. If no tax is due, the penalty for a late filed return is $50 per month or fraction thereof that the return is late, not to exceed $300. A floating rate of interest applies to underpayments and late payments of tax. Interest rates can be found on the Department’s Tax and Interest Rates webpage.

Can Cleer help me with my Florida Income Tax?

YES!  Every Cleer Corporate Income Tax Package includes BOTH Federal and State income tax filings.

Cleer provides accurate, affordable, and efficient financial and tax services for U.S. businesses and subsidiaries to help entrepreneurs do it right from the start. We also offer all-in-one monthly accounting packages that include monthly statements as well as your federal and state tax returns. If you have any other questions about forming your company or how to maximize your tax savings, book a consultation to discuss the best structure for your startup business, regardless of which state you register in. We also provide a new company package that includes a tax consultation, bookkeeping, and a chart of accounts set up to help you do it right from the start.