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Start Hiring For FreeAs a small business owner in Maryland, staying on top of the state's tax laws can feel overwhelming.
But this guide aims to make tax compliance straightforward by clearly outlining everything you need to know as a Maryland entrepreneur.
You'll understand the critical tax forms, rates, and filings for income tax, sales tax, payroll, and more. We'll also provide key resources to leverage when you need tax assistance down the road.
Maryland has a progressive state income tax system, with rates ranging from 2% to 5.75% depending on taxable income levels. Small businesses may need to pay corporate or personal income tax depending on their business structure.
Maryland also has a 6% statewide sales and use tax that applies to goods and some services. Small businesses making taxable sales need to register for a sales tax license. There are some sales tax exemptions for manufacturing equipment, resale inventory, and more.
Businesses with employees need to register for employer tax IDs and handle payroll taxes, including withholding state income tax as well as unemployment insurance taxes. Independent contractors may still be liable for certain Maryland taxes.
To formally start a business in Maryland, you typically need to take the following steps:
Resources like Maryland Business Express provide user-friendly guidance on registering your business properly in Maryland.
The Maryland Business Express website offers a centralized portal for managing your business tax accounts with the state. Key features include:
Using Maryland Business Express can help simplify staying on top of your business tax compliance requirements.
As a small business owner in Maryland, you will need to file a few key tax forms to stay compliant with state and federal requirements. Here is a quick overview:
Staying on top of your tax obligations will make tax time less stressful as a small business owner. Consider working with an accountant or using tax software to help manage your federal and Maryland tax compliance.
Maryland has a 6% state sales tax rate that applies to most transactions. However, certain goods and services may have different tax rates or exemptions.
Here are some key things small business owners need to know about Maryland's sales tax:
As a small business owner, it's important to understand what is taxable and what is exempt to comply with Maryland's sales tax laws. Consulting the Maryland Sales and Use Tax Information page can help clarify the specifics. With some diligence, managing sales tax compliance doesn't have to be complicated for your small business.
If you file as a C-corp or elect to pay state taxes at the entity level, your LLC is subject to Maryland's 8.25% corporate income tax. This means you will need to pay taxes on your LLC's total taxable income.
Some key things to know about LLC taxes in Maryland:
So in summary, if your LLC is taxed as a pass-through entity, you avoid corporate taxes and only pay personal rates on your share of income. But if you elect corporate taxation, your LLC itself pays 8.25% state tax on total taxable business income. Be sure to consult an accountant to determine the best tax classification for your business.
To legally operate a business in Maryland, there are several key requirements you must fulfill:
The first step is to register your business name and structure with the state. You can file online through the Maryland Business Express portal. Depending on your business structure, you may need to file articles of organization, articles of incorporation, or a certificate of limited partnership.
You'll need an Employer Identification Number (EIN) from the IRS to identify your business for tax purposes. You can easily apply online.
Most new businesses in Maryland need to file a Beneficial Ownership Information Report to the Financial Crimes Enforcement Network (FinCEN), providing details on business owners and controllers. This helps prevent financial crimes.
Register with the Comptroller of Maryland to obtain sales & use tax and withholding tax licenses. You may also need to register for unemployment insurance and workers’ compensation.
Depending on your industry, you may need to apply for specific business licenses or permits in Maryland before opening your doors. Common examples include health, construction, alcohol sales, and professional services licenses.
Look into general liability insurance, property insurance, business interruption insurance, cyber insurance, and other policies to mitigate risks. Consult an insurance broker to determine what coverage makes sense.
Maryland small business owners must provide health insurance for themselves and any employees. Shop plans on the state's health insurance marketplace.
Following these key steps will ensure your business meets all legal and regulatory requirements to operate in Maryland. Be sure to stay up to date on any changes to state or federal business compliance rules.
This section covers filing federal and Maryland income taxes for your small business.
As a small business owner in Maryland, you have certain federal income tax filing requirements and obligations you must meet each year:
Stay current on 1099 reporting requirements, W-2s, and any other necessary federal payroll and business tax filings. Consider working with an accountant to ensure full compliance.
In addition to your federal obligations, be aware of Maryland state income tax requirements:
Work closely with your accountant to claim applicable Maryland business tax deductions, organize your bookkeeping records, and meet all state filing deadlines.
Maryland Form 510 is the annual return filed by pass-through entities like partnerships, S-corps, LLCs, etc. Follow these steps to accurately complete Form 510:
Following Maryland's guidance and properly completing all forms protects your business from penalties for non-compliance. Reach out for help from a tax professional if needed.
This section provides key details on registering for, collecting, filing, and paying Maryland sales and use tax.
To register for a Maryland sales tax license, small business owners can visit the Maryland Business Express website. This is a fast and easy way to register your business and receive your sales tax license.
Here are the steps to follow:
By registering online, you avoid delays and can quickly obtain your license to comply with sales tax laws.
Maryland imposes a 6% sales tax rate on tangible goods as well as certain services. Some examples of taxable services include:
As a small business selling services, it is important to understand what is taxable. Review the taxability rules and laws to ensure you are charging, collecting, reporting and remitting sales tax properly. Failing to comply can result in penalties.
Certain products, services, and organizations may qualify for exemptions from Maryland sales and use tax collection. Common exemption certificates include:
To apply, complete the Maryland Sales and Use Tax Exemption Certificate (SUTEC) and submit to your suppliers. This allows you to purchase inventory or services tax-free for resale.
Maryland recently enacted economic nexus laws similar to other states. This means out-of-state sellers exceeding $100,000 in sales or 200+ transactions in Maryland must register to collect and remit sales tax.
Review Maryland's nexus information to understand if you have nexus and must comply with tax obligations. Failure to do so when meeting thresholds can result in interest, fines and penalties.
Maryland offers a free online service called bFile to file and pay your sales and use tax. This allows for fast and secure electronic filing without paperwork.
The system provides prompts and instructions for completing returns such as the SUT202 form. Using bFile avoids mailing delays and provides instant confirmation of filing.
For any sales tax questions, refer to the Sales and Use Tax FAQ page. Understanding obligations upfront makes tax compliance much simpler.
This section covers properly withholding, reporting, and remitting payroll taxes in Maryland.
To set up payroll tax accounts as a Maryland employer, you first need to obtain an Employer Identification Number (EIN) from the IRS. This unique number identifies your business for tax purposes. You can easily apply for an EIN online at IRS.gov.
Once you have your EIN, you need to register with the following Maryland agencies:
Completing these registrations ensures you can properly withhold, remit, and report payroll taxes at federal and state levels as a Maryland employer.
As a Maryland employer, you must calculate and withhold certain taxes and deductions from employees' gross wages each pay period, including:
You should use payroll software or work with an accountant to automate calculations, ensuring accuracy and compliance when withholding taxes.
As a Maryland employer, you must file returns and remit what you've withheld from employees' paychecks to the appropriate agencies:
Failure to properly report or remit payroll taxes by their due dates can result in penalties and interest charges. Consider outsourcing payroll administration to ensure compliance.
Using payroll software or an accountant helps minimize mistakes when handling payroll tax duties for your Maryland business.
A brief overview of other state and local Maryland taxes that may apply to your small business.
All businesses in Maryland that own real property or personal property may be subject to property taxes. Real property taxes apply to land and buildings, while personal property taxes apply to business equipment, machinery, and other assets.
Property taxes are assessed and collected by each county and municipality in Maryland. Tax rates can vary widely across jurisdictions. Businesses should check with their local assessment office to determine their property tax obligations.
Some key things for business owners to know:
Keeping detailed records of all business property and meeting tax deadlines are essential to avoiding unnecessary fees. Professional assistance may be needed to optimize property tax savings.
In addition to standard income, sales, and property taxes, some industries in Maryland are subject to specialized taxes:
Accommodations Tax: Hotels, motels, resorts, vacation rentals, etc. must collect an accommodations tax ranging from 5-11% on room rental charges depending on the jurisdiction.
Alcohol Taxes: Alcohol producers, wholesalers, and retailers owe various liquor taxes, license fees, and sales taxes in Maryland. This is a complex area with frequent legislative changes.
Tobacco Taxes: Tobacco product manufacturers and wholesalers pay an excise tax on cigarettes, other tobacco products (OTP), and electronic smoking devices sold in Maryland. Retailers collect and remit sales tax.
Public Utilities Taxes: Businesses providing electric, gas, steam, telephone, cable TV, water, sewage disposal, and other public utility services are subject to specialized taxes in Maryland, including franchise taxes, excise taxes, regulatory assessments, etc.
Determining tax obligations for these and other highly-regulated industries can be complicated. Working with an industry specialist is advisable to ensure full legal compliance.
Maryland is a full member of the Streamlined Sales and Use Tax Agreement (SSUTA), which standardizes and simplifies sales tax administration across multiple states. Key benefits include:
The SSTRS allows businesses to register for sales tax in all SSUTA member states through a single online application. Once registered, sellers can utilize simplified returns, uniform sourcing rules, tax calculation software integrations, and other benefits.
SSUTA also requires member states provide amnesty for prior liabilities to sellers who voluntarily register. This can help bring previously non-compliant companies into compliance.
Maryland businesses making sales in multiple states should strongly consider SSTRS registration to ease administrative burdens. Consultation with a sales tax professional is advisable when dealing with multi-state obligations.
Maryland has two annual sales tax holidays that can impact small business operations. The first is in February for Energy Star products, which exempts qualifying energy-efficient appliances and products from the 6% sales tax. Small businesses selling these types of products can market them more competitively during the tax-free week.
The second is in August for back-to-school shopping. During this weekend, most clothing and footwear priced under $100 is exempt from sales tax. Small retailers selling applicable goods can boost revenues by promoting tax-free savings to draw in more shoppers. Entrepreneurs should factor these weekends into sales projections and inventory planning.
To legally operate in Maryland, corporations must establish substantial nexus - a significant economic presence and physical connection to the state. This requires having property, employees, facilities, inventory, sales, licenses, etc. within Maryland borders.
Out-of-state corporations that meet Maryland's economic nexus thresholds must register to collect and remit sales tax. In 2022, the economic nexus threshold is $100,000 in gross revenue or 200 or more separate sales transactions. Failure to register when nexus requirements are met can result in tax assessments, interest, and penalties.
When are sales tax returns due? Returns must be filed monthly or quarterly depending on taxable sales. Monthly returns are due by the 21st of the following month. Quarterly returns are due by the 21st of January, April, July, and October.
What purchases are exempt from sales tax? Common exemptions include manufacturing equipment, prescription medicine, most food, textbooks, tangible personal property for resale, and more. Refer to Form SUT 203 for details.
Can I file sales tax returns online? Yes, sales tax returns can be conveniently filed through Maryland's bFile service. bFile allows online filing, payment, registration, and account management.
This section provides helpful resources and contact information for Maryland small business owners seeking guidance on state taxes.
The Maryland Business Express provides a centralized hub to help businesses easily register, get licensed, file taxes and more in Maryland. Key services include:
Leveraging Business Express can save small business owners time when navigating regulatory requirements in Maryland.
The Comptroller of Maryland administers and enforces tax laws in the state. Small business owners can contact them via:
The Comptroller's office can provide guidance on tax registration, filing, exemptions, tax credits, closing a business, and any other questions related to Maryland business taxes.
Maryland House Bill 1301 (HB 1301), also known as the Digital Advertising Gross Revenues Tax, was passed in 2022. It imposes a 2.5% to 10% tax on annual gross revenue from digital advertising services in Maryland. This bill mainly impacts large digital advertising companies but also affects small business owners running digital ads. Business owners should factor this tax into their digital marketing budgets and work with tax professionals to ensure compliance.
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