Tax Benefits for Small Businesses in Florida: The Basics

Florida offers a host of tax advantages for prospective small business owners. Small business regulations in Florida are minimal, and the state imposes few barriers to entry for new companies. The only companies that pay state income taxes in Florida are traditional corporations (also called C corporations). A C corporation is a legal business structure that also dictates the tax treatment of a business. While small businesses sometimes convert to C corporations once their growth reaches a certain level, very few small businesses are classified as C corporations when they’re just starting out; most are S corporations, limited liability companies (LLCs), partnerships, or sole proprietorships. None of these other legal business structures pay state income taxes in Florida.

Moreover, individuals in Florida are not subject to state income taxes. This means business owners in Florida are not taxed on any income that passes through from their small business to themselves.

The state economy is also healthy. Between February 2022 and February 2023, Florida’s labor force grew by 2.3%, compared to the national labor force growth of 1.5% during the same time period. The state’s unemployment rate stands at 3.3%, as of October 2024. (In October 2024, the national unemployment rate was 4.1%.) Lastly, Florida pays its workers and business owners an attractive bonus in the form of 12 months of warm weather, abundant sunshine, and easy access to the country’s most popular beaches.

Key Takeaways

• Florida is a tax-friendly state for individuals and small businesses, specifically.
• Small business regulations in Florida are minimal, and the state imposes few barriers to entry for new companies.
• Small businesses—which are usually legally structured as S corporations, limited liability companies (LLCs), partnerships, or sole proprietorships—are exempt from state income taxes.

Corporate Taxes in Florida

Unless a small business is set up as a C corporation, Florida does not impose state income taxes on it. 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.

Note

Previously, corporations were required to pay the higher amount: either the standard rate—minus all exemptions and credits—or an alternative minimum tax (AMT) rate of 3.3%. However, the Tax Cuts and Jobs Act (TCJA) of 2017 repealed corporate AMTs.

As of 2024, the first $50,000 in income is exempt from Florida’s corporate tax. For tax years ending June 30, the due date is on or before the first day of the fourth month following the close of the tax year. For all other tax year endings, the due date is on or before the first day of the fifth month following the close of the tax year.

S Corporations in Florida

A S corporation is a business structure that is permitted to pass its taxable income, credits, deductions, and losses directly to its shareholders. This designation is only available to small businesses with 100 or fewer shareholders. Many small business owners in Florida elect to set up their companies as S corporations because S corporations are not subject to the state’s 5.5% corporate tax.

And, because there is no state income tax on individuals in Florida, business owners also don’t pay state income taxes on their personal income (including any income that passes through from their small business to themselves).

Despite not being subject to any state corporate income taxes in Florida, S corporations provide many of the same legal protections to business owners as C corporations, including the protection of personal assets if a judgment is entered on the business.

However, unlike a C corporation, an S corporation is not subject to federal income tax because the income earned by the business passes through to the business owners. Therefore, the owners must pay federal income tax on their income from the business at ordinary income tax rates.

Limited Liability Companies (LLCs) in Florida

A limited liability company (LLC) is a business structure that combines the characteristics of a corporation with those of a partnership or sole proprietorship. LLCs shield business owners from certain legal and financial risks. For tax purposes, most (but not all) LLCs are classified as partnerships or disregarded entities. When this is the case, an LLC does not pay state income tax in Florida because it is not a corporation. In rare cases, an LLC is also incorporated. In Florida, this results in a state income tax of 5.5%.

Like S corporations, LLCs—except those that are also incorporated—are shielded from state income tax, and their owners do not pay any taxes to the state of Florida on the personal income that passes through to them from the businesses. Setting up an LLC in Florida is fast, easy, and inexpensive; many small business owners take the step of setting up as an LLC because they want basic protection of their personal assets, while also maintaining their zero state income tax liability.

Business Partnerships in Florida

There are several different types of business partnerships: general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs).

A general partnership is a business structure where two or more individuals agree to share responsibilities, assets, profits, and the financial and legal liabilities of a jointly-owned business. A limited partnership (LP) is a business structure formed with at least one general partner and one (or more) limited partners; the general partner has unlimited financial liability, and the other partners have liability up to the size of their investment. Finally, a limited liability partnership (LLP) is an entity where every partner has a limited personal liability for the debts or claims of the partnership.

No matter the specific designation, partnerships are not subject to state income tax in Florida.

Income from all partnerships is paid directly to the partners of the business. The partners pay federal income tax on this income at ordinary income tax rates—the same as they would do for income from a W-2 or contract job. Because Florida imposes no state tax on ordinary income, small business owners in the state whose companies are classified as partnerships are fully shielded from state income tax.

Sole Proprietorships in Florida

A sole proprietorship is a business structure with one owner. There is no legal separation between the company and the business owner, who receives all profits but is liable for all debts and losses.

Sole proprietorships work similarly to business partnerships, except the business income is distributed to one person (the singular business owner), rather than being distributed to multiple partners. This income is considered ordinary personal income for federal income tax purposes; the business owner is assessed federal tax on it at ordinary income tax rates.

Florida considers income distributed from a sole proprietorship to be ordinary personal income, which it does not tax. Because the business is not a corporation, it is not subject to state income tax—and the business owner is absolved from paying state taxes.

Multistate Businesses

Small business owners who have companies located in Florida—but who conduct significant business in other states—may have to pay taxes in those states where they earn business income, even if they don’t have a physical presence there. In these situations, the business is said to have “nexus” with those states.

Whether a business owes sales taxes to a particular state government depends on the way that specific government defines a nexus. Florida, for example, has a $100,000 economic nexus threshold, whereas in California the threshold is $500,000. Any out-of-state business that exceeds those thresholds in a calendar year will be required to register and pay any applicable taxes.

Small businesses generating revenue from different states are advised to look into the nexus rules of the states where they do business.

Do Small Businesses Pay Taxes in Florida?

Most small businesses are structured as either limited liability companies (LLCs), sole proprietorships, partnerships, or S corporations. These types of entities are exempt from paying Florida income tax. Florida does not impose an income tax on individuals, making it an attractive place for small businesses to set up shop.

What Taxes Do LLCs Pay in Florida?

If the LLC is not incorporated, there is no state income tax to pay in Florida. LLCs are shielded from state income tax, and their owners pay no taxes to the state of Florida on the personal income that passes through to them from the business. That means most LLCs only need to pay federal self-employment taxes, Florida’s sales tax, and any applicable additional local taxes.

What Is the Self-Employment Tax in Florida?

Sole proprietors and partnerships do not pay tax at the state level in Florida. That leaves the federal self-employment tax, which is 15.3% in 2024. This rate consists of two separate parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

The Bottom Line

Florida is often ranked as one of the best states for small businesses to set up shop. It’s fairly easy to start a business there, regulation is minimal, the local economy is healthy, and the tax environment can be very favorable. In Florida, S corporations, non-incorporated limited liability companies (LLCs), partnerships, and sole proprietorships don’t pay state income taxes.