As a small business owner in Nebraska, staying on top of the state's tax system can feel overwhelming.
But having a solid grasp of the key aspects allows you to plan and budget appropriately, while ensuring full compliance.
In this comprehensive guide, you'll get an in-depth look at critical areas like:
- Key sales tax rates and economic nexus rules
- Resources for registration, filing, and support
- Tax implications for common business structures
- Setting aside funds and doing your own taxes
- Plus additional tips and recommendations
Introduction to Nebraska's Tax System for Small Businesses
Nebraska has a statewide sales tax rate of 5.5%, with some counties and cities charging additional local sales taxes. As a small business owner in Nebraska, it's important to understand the tax obligations for your business.
Understanding the Nebraska Sales Tax Rates
The statewide sales tax rate in Nebraska is 5.5%. However, many counties and cities also impose local sales taxes ranging from 0.5% to 2%. To find the sales tax rate for a specific location, you can use the Nebraska Department of Revenue's sales tax lookup tool. Some key things to know:
- Omaha has a total sales tax rate of 7%
- Lincoln has a total sales tax rate of 6.5%
- Rural areas may have sales tax rates as low as 5.5%
Make sure to check rates regularly, as local governments can adjust sales tax rates.
Navigating Economic Nexus and LB284
Under Revised Statute 77-2701.13, remote sellers with over $100,000 in sales or 200+ transactions in Nebraska have economic nexus and must collect and remit sales tax. This is also known as the economic nexus threshold.
Additionally, under LB284, delivery charges are subject to sales tax, even if separately stated. So be sure to factor this into your tax calculations.
Resources for Compliance: NebFile for Business Web Portal
The NebFile for Business web portal allows you to electronically file and pay your Nebraska sales and use taxes. This is the easiest way to handle your tax compliance obligations.
Some key features include:
- File and pay sales and use taxes
- Maintain multi-location merchant profiles
- View filing history and payments
- Receive notifications about tax law changes
Leveraging the online system can save you time and simplify compliance.
Seeking Support from Nebraska Taxpayer Assistance Centers
If you need help understanding your small business tax obligations, Nebraska has Taxpayer Assistance Centers located throughout the state. These offices can:
- Answer questions about registering your business
- Explain how tax rates and rules apply to your business
- Assist with completing tax forms
- Provide guidance on sales tax compliance
In addition, resources like the Nebraska Department of Revenue and Nebraska Business Development Center have information to support local small business economic activity.
Understanding Nebraska's tax system is key for small business owners. Following the guidance on tax rates, thresholds, and filings can help you stay compliant. And be sure to leverage available resources if you need help navigating Nebraska's tax rules.
What is the small business tax in Nebraska?
The small business tax rate in Nebraska is based on your taxable income:
- Between $0 - $100,000: 5.58% of your taxable income
- $100,001 and over: $5,580 plus 7.25% of anything over the first $100,000
For example, if your taxable income as a small business is $150,000, your tax would be calculated as:
- First $100,000 taxed at 5.58% = $5,580
- Remaining $50,000 taxed at 7.25% = $3,625
- Total tax = $5,580 + $3,625 = $9,205
So in this example, a small business with $150,000 of taxable income would pay $9,205 in state income tax in Nebraska.
Some key things small business owners should know about Nebraska's tax system:
- Nebraska has a single-rate individual and corporate income tax system
- There is no local income tax on small businesses
- Sales tax rates vary across the state but the state-level rate is 5.5%
- There are some sales tax exemptions available for manufacturing equipment and agriculture
- Nebraska offers tax incentives for some businesses including the Nebraska Advantage Act
Understanding how taxes apply to your small business is important. Be sure to consult with a tax professional to ensure you are fully compliant and taking advantage of any savings opportunities.
What taxes does a LLC pay in Nebraska?
Most LLCs are considered "pass-through tax entities" (PTEs) for income tax purposes in Nebraska. This means that the individual owners pay taxes on their share of the business's income, rather than the LLC itself paying income tax.
Specifically, LLCs in Nebraska do not pay:
- Federal or state income tax
- Franchise tax
- Corporate income tax
Instead, the owners report their share of the LLC's profits or losses on their personal tax returns and pay any resulting income taxes.
LLCs may need to pay other Nebraska state taxes including:
- Sales tax - If the LLC sells taxable goods or services
- Employment taxes - Such as unemployment insurance and withholding taxes for any employees
- Property tax - If the LLC owns real property or tangible personal property
- Excise taxes - On specific goods sold or activities
So while the LLC itself does not pay income tax, the owners pay personal income tax on the LLC's profits. And the LLC does need to comply with other applicable Nebraska taxes. Keeping detailed financial records and working with an accountant can help LLC owners correctly file taxes and avoid any penalties.
How much should a small business owner set aside for taxes?
According to financial experts, small business owners should plan to set aside around 30% of their net income to cover federal and state taxes. This higher tax rate accounts for both income tax and self-employment tax that business owners are responsible for paying.
When budgeting for taxes, here are some tips for small business owners:
- Track income and expenses accurately throughout the year using accounting software. This will help you determine your estimated tax liability more precisely.
- Make quarterly estimated tax payments to avoid penalties. Most small business owners need to make quarterly estimated payments towards their annual tax bill.
- Consult a tax professional to understand all deductions and credits you might qualify for to reduce your taxable income. For example, you may be able to deduct startup costs, equipment purchases, home office expenses, and more.
- Look into tax-advantaged retirement plans like a SEP IRA or Solo 401k that allow you to contribute pre-tax dollars and lower your taxable income. The ability to save more for retirement is an added benefit.
- Set aside 30-40% of each payment you receive into a separate savings account reserved for taxes. This helps ensure you have the cash on hand when tax time comes.
Properly budgeting for self-employment taxes is crucial. While setting aside 30% can seem high, being underprepared can lead to owing back-taxes, penalties, and interest down the road. Consult an accountant to be sure you are adequately saving for your tax liability.
How do I do my taxes if I own my own business?
Filing taxes for your small business in Nebraska can seem daunting, but it doesn't have to be complicated. Here's a quick guide to get you started:
What Tax Forms Will I Need?
- Schedule C: This form reports your business's profits and losses. You'll subtract your business expenses from your earnings to calculate your net profit or loss.
- Form 1040: Your Schedule C net profit/loss gets transferred to your personal Form 1040. The business income gets lumped in with your other income to calculate your total tax obligation.
How Do I Calculate My Business Earnings?
Your Schedule C business earnings include all gross income from your business activities. This includes cash/check/credit card payments, account receivables, and the fair market value of any bartered goods or services.
Be sure to keep detailed records of all your earnings - including invoices, bank statements, 1099 forms, and so forth.
What Expenses Can I Deduct?
All "ordinary and necessary" costs of running your business are deductible expenses, including:
- Supplies and materials
- Advertising
- Business use of your home/vehicle
- Contract labor
- Insurance
- Legal and professional services
- Rent
- Repairs and maintenance
- Travel
- Meals (subject to 50% limitation)
- Utilities
- And more
Save your receipts and track expenses carefully. Every deduction must be business-related and properly documented.
That's the Basics!
While filing business taxes takes some upfront prep, Schedule C itself is only two pages. Simply tally your earnings, subtract expenses and exemptions, and transfer the net amount onto your personal return. Easy peasy! Nebraska wants small businesses to thrive, so take advantage of all available deductions and savings.
Deciphering Nebraska's Sales Tax Rates and Jurisdictions
This section provides an overview of sales tax rates across Nebraska to help small business owners understand and comply with state and local tax laws.
Statewide Sales Tax Rates Overview
The statewide sales tax rate in Nebraska is 5.5%. This base rate applies to most transactions across the state. However, local jurisdictions may add additional sales taxes on top of this amount.
All sellers with an economic nexus in Nebraska are required to collect and remit sales tax per Revised Statute 77-2701.13. This includes both brick-and-mortar stores located in Nebraska, as well as remote sellers with over $100,000 in sales or 200 transactions in the state.
Local Sales Tax Variations
In addition to the 5.5% state sales tax, many counties and cities in Nebraska have local option sales taxes ranging from 0.5% to 2%. For example, the combined state and local sales tax rate is 7% in Omaha and 6.5% in Lincoln.
To determine the full sales tax rate to collect for a specific transaction, sellers need to identify the tax jurisdiction based on the delivery address. Resources like Avalara AvaTax can simplify this process.
Sales Tax Rate Determination for Specific Transactions
Certain types of transactions have special sales tax rules under Nebraska's laws and regulations. For example, delivery charges are exempt from sales tax per Regulation 1-079.
When determining sales tax rates, it is important to correctly identify the nature of the transaction and jurisdiction. Misapplication of rates can lead to tax compliance issues.
Sales Tax Holidays in Nebraska
Nebraska currently does not have any annual sales tax holidays. However, the state legislature has enacted temporary sales tax exemptions around specific events when seeking to encourage local small business economic activity.
For example, LB284 established a sales tax holiday from November 23rd to November 25th, 2022 for small businesses. All retailers with less than $10 million in annual gross revenue were exempt from collecting state and local sales taxes during this period.
Stay updated on any temporary sales tax exemptions relevant to your business by checking the Nebraska Department of Revenue website and proactively planning pricing and collections accordingly during these periods.
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Comprehending Nebraska Sales Tax Laws and Rules for Remote Sellers
This section focuses on laws and guidelines impacting remote sellers, including nexus thresholds, tax holidays, and more.
Economic Nexus and Remote Seller FAQs
The state of Nebraska has established economic nexus thresholds that determine when out-of-state sellers are required to register, collect, and remit sales tax. This applies specifically to sellers that do not have a physical presence within the state.
The economic nexus sales threshold is set at $100,000 or 200 or more separate transactions in the current or previous calendar year. Once these thresholds are met, the seller has established substantial nexus with Nebraska and must begin collecting and remitting sales tax.
Some common questions remote sellers have around economic nexus include:
- What constitutes a taxable transaction? Any sale of tangible personal property or service delivered into Nebraska.
- When do I start collecting sales tax if I meet the threshold? At the start of the next calendar year after exceeding the threshold.
- What tax rate do I collect? Nebraska has a single statewide tax rate of 5.5%. Some counties also have local option sales taxes.
- How do I remit the sales tax I collect? You can register through the Nebraska Taxpayer Access Point (TAP) system. Taxes are filed on a monthly, quarterly, or annual basis depending on your sales volume.
It's important for remote sellers to closely monitor their Nebraska sales activity and register to collect tax once economic nexus is established to remain compliant.
Understanding Sales Tax Holidays and Exemptions
Nebraska has a sales tax holiday on the first Friday in August for clothing and footwear purchases under $100 per item. During this time, eligible items are exempt from state and local sales taxes.
Additionally, certain goods and services are exempt year-round in Nebraska, including but not limited to:
- Prescription medicine and insulin
- Most food purchased for home consumption
- Agricultural machinery and equipment
- Manufacturing machinery and equipment
There are also various industry-specific exemptions, so it's important to consult the Nebraska Department of Revenue guidelines to determine if a purchase qualifies. Exemption certificate Form 13 must be provided by exempt purchasers.
Keeping up to date on sales tax holiday and exemption rules can help remote sellers properly apply tax on Nebraska sales.
Taxability of Delivery Charges (1-079)
Nebraska sales and use tax regulation 1-079 provides guidelines on how delivery charges relate to the taxability of sales. In general, delivery charges are subject to sales tax if the items being delivered are also taxable.
Some key guidelines from 1-079 include:
- Delivery charges for otherwise exempt items are not taxable. For example, delivery fees on prescription medicine.
- Handling fees are taxable as they relate to the sale of tangible personal property.
- Transportation charges for hauling excavated dirt, minerals, etc. by a contractor as part of an improvement to real estate are not taxable.
It's important for remote sellers to understand how Nebraska taxes delivery charges to ensure accuracy in collecting and remitting sales tax. Checking regulation 1-079 can provide more definitive guidance.
Complying with economic nexus rules, properly applying sales tax holidays/exemptions, and adhering to guidelines for taxing delivery charges can help remote sellers remain fully compliant with Nebraska sales tax laws. Regularly consulting the Nebraska Department of Revenue website and resources ensures awareness of any updates.
Navigating Sales and Use Tax Registration in Nebraska
Remote Seller Registration Process
Remote sellers with no physical presence in Nebraska may still be required to register and collect sales tax if they meet the state's economic nexus thresholds under Revised Statute 77-2701.13. This law, passed in 2018, establishes that remote sellers with over $100,000 in sales or 200 or more separate transactions delivered into Nebraska in the previous or current calendar year have sales tax obligations in the state.
To register, remote sellers must complete Form NE-10 and submit it to the Nebraska Department of Revenue. This form establishes a sales tax account and provides the information needed to correctly file and remit sales tax. Remote sellers must then begin collecting and remitting sales tax on Nebraska sales no later than the first day of the third calendar month after meeting the economic nexus thresholds.
It is important for remote sellers to carefully track their Nebraska sales activity to determine when they cross the economic nexus thresholds. Using sales tax automation software like Avalara AvaTax can help with this.
Sales Tax Filing Due Dates and Remittance Schedules
Once registered, remote sellers must file Nebraska sales tax returns on a monthly, quarterly, or annual basis depending on their total sales tax liability:
- Over $500/month: File monthly
- $500-$1,500/quarter: File quarterly
- Under $500/year: File annually
Sales tax payments must be remitted with each return based on the corresponding schedule. Returns and payments are due by the 20th day of the month following the end of the filing period.
It is important to carefully track sales activity and remittance requirements to avoid noncompliance penalties from the Nebraska Department of Revenue. Using accounting software or working with a sales tax professional can help manage filing due dates and remittance schedules.
Maintaining Sales Tax Registration
If a remote seller's Nebraska sales activity drops below the economic nexus thresholds for the previous year, they can submit a Business Close form to close their sales tax account with the state.
Additionally, remote sellers must update their sales tax registration within 30 days whenever business information like location, ownership, or contact details change. This ensures tax records stay current.
Carefully maintaining sales tax registration status and information helps remote sellers remain compliant and avoid unnecessary penalties or interest charges.
Filing Nebraska Sales and Use Tax Returns Efficiently
This section offers guidance on the tax return preparation and submission process.
Choosing the Right Return Filing Method
Businesses in Nebraska have a few options when it comes to filing sales and use tax returns:
- Paper filing: Returns can be filed by paper by printing the forms from the Nebraska Department of Revenue website and mailing them in. This is the most time-consuming option.
- NebFile for Business: This free online portal allows businesses to electronically file returns. It does the calculations automatically and saves prior returns for easy access. Using NebFile can help avoid errors and speed up processing.
- E-filing software: Third-party software like Avalara AvaTax can fully automate sales tax preparation and filing. This option provides efficiency through automation and integration.
For most small businesses in Nebraska, using NebFile or e-filing software will be the best approach in terms of efficiency and convenience. However, those without computer access can still file by paper if needed.
Automating Tax Returns with Avalara AvaTax
Avalara AvaTax provides automated sales and use tax calculation and returns filing for businesses. Key features include:
- Automatic tax rate determination based on Nebraska economic nexus laws
- Integration with leading ecommerce platforms and POS systems
- Automated returns preparation and filing with the Nebraska Department of Revenue
- Access to AvaTax Exemption Certificate Management to store and validate exemption certificates
Using AvaTax can eliminate manual tax return processes, reduce errors, and provide audit support through transaction-level reporting. The software stays updated with the latest Nebraska tax laws and rules as well.
Securing Filing Extensions and Avoiding Penalties
If more time is needed to file returns, businesses can submit Form 21 to receive an automatic six-month extension. This form must be submitted by the original due date to avoid late filing penalties.
Some key reasons for penalties, and how to avoid them, include:
- Late filing: File on time or submit an extension to avoid penalties up to 25% of tax due
- Late payment: Pay on time or set up a payment plan to avoid penalties up to 25% of tax due
- Inaccurate returns: Carefully review returns prior to submission to avoid penalties up to 25% of underreported tax
Putting procedures in place to monitor due dates and ensure timely, accurate filing is essential for avoiding penalties. Automation through solutions like Avalara AvaTax can help in that regard as well.
Utilizing Nebraska's Tax Resources and Support Systems
Nebraska offers several valuable resources to assist small business owners in understanding and complying with the state's tax laws and regulations.
Exploring the Nebraska Department of Revenue Website
The Nebraska Department of Revenue's website (revenue.nebraska.gov) is a key resource for finding tax forms, guidance, and support. Some helpful sections of the site include:
- Laws, Regulations & Rulings - Access the official statutes, regulations, revenue rulings, and other legal documents that govern Nebraska's taxes.
- Sales & Use Tax - Get info on sales tax rates, economic nexus laws, remote seller requirements, and more. Download tax charts, industry guides, and Form 10.
- Tax Assistance - Search common FAQs or contact the call center and Taxpayer Assistance Centers to get help with preparing returns or understanding your tax obligations.
Checking the website regularly can help businesses stay current on requirements as laws and forms are updated.
Leveraging the Streamlined Sales Tax Governing Board (SSTRS)
The SSTRS assists with multistate tax compliance and administration. Small businesses can:
- Access the SSTRS registration system to easily register with multiple states at once.
- Use available sales tax rate lookup tools and taxability matrices to simplify tax calculations.
- Stay updated on changes to rates, definitions, sourcing rules, and more.
Utilizing SSTRS resources can save considerable time when expanding into additional states.
Contacting Nebraska Taxpayer Assistance Centers
Nebraska has Taxpayer Assistance Centers located in Omaha, Lincoln, and other cities. These centers:
- Provide in-person help with resolving tax issues and navigating compliance.
- Offer tax return preparation assistance during the filing season.
- Can set up payment plans for those struggling with tax debts.
Visiting a local assistance center allows small business taxpayers to get specialized support meeting their obligations.
Equipping yourself with knowledge of Nebraska's tax resources is vital for new and growing local businesses. Regularly consulting these informational sites and support contacts can help owners avoid penalties, access incentives, and operate smoothly year-round.
Fostering Local Small Business Economic Activity through Tax Compliance
Compliance with tax laws and regulations can provide meaningful benefits for small businesses and their local communities. By understanding and following applicable rules, businesses contribute tax revenue that funds public services and infrastructure. This section explores resources available to help small businesses comply, as well as how compliance enables economic growth.
Utilizing the Nebraska State Website for Business Resources
The Nebraska State Website offers many helpful resources for small business owners seeking guidance on legal compliance. The site contains information on business registration, taxes, incentives, events, and more.
Some key sections useful for tax compliance include:
- Taxes and Incentives - Details on state tax laws, forms, and assistance programs. Covers sales, income, property, and other tax types.
- Business Registration - Instructions and links for registering your business with state agencies. Ensures you meet licensing and regulatory requirements.
- Business Events Calendar - Workshops, training events, and seminars to learn about compliance topics.
Taking advantage of these resources helps businesses understand their obligations and avoid penalties. It also connects them with tax incentives and community development programs.
Supporting Growth with the Nebraska Business Development Center
The Nebraska Business Development Center (NBDC) provides consulting and training to fuel small business expansion. Their services include:
- Financial management assistance - Guidance on accounting, budgeting, and modeling to improve profitability.
- Export training - Helping companies sell into global markets while remaining compliant.
- Government contracting aid - Support with navigating compliance rules to win public sector clients.
Developing sound financial and operational capabilities through the NBDC enables sustainable growth. This contributes tax revenue to reinvest into local economic development initiatives.
Department of Economic Development: A Partner in Business Success
The Nebraska Department of Economic Development (DED) offers programs assisting companies with capital, expansion, and networking. Their offerings help drive local business activity and job creation through:
- Access to financing - Low-interest loans, microloans, and tax credits to enable growth investments.
- Relocation and expansion support - Helping companies move into or extend their Nebraska presence.
- International trade missions - Events connecting local businesses with global importers and exporters.
Participating in DED initiatives provides resources to scale companies in a compliant way. This allows businesses to hire more Nebraska residents while generating additional tax revenue from their growth.
By leveraging government-sponsored economic development resources, small businesses can find support for legal and ethical expansion. This creates quality local jobs and tax income to reinvest in communities across Nebraska.
Conclusion: Mastering Nebraska's Tax System for Business Success
Recap of Nebraska's Tax System Essentials
Nebraska has a complex tax system that small business owners must understand in order to remain compliant. Key points covered in this guide include:
- Nebraska has a state sales tax rate of 5.5%. Combined with local taxes, rates can reach as high as 7%.
- Remote sellers with over $100,000 in sales or 200 transactions must register and collect sales tax under economic nexus laws.
- Various laws like Revised Statute 77-2701.13 and LB284 impact sales tax obligations. Resources like the SSTRS and AvaTax can help with compliance.
- Sales tax holidays provide temporary exemption from certain state and local sales taxes.
- Form NE-10 and the NebFile portal allow for easy online filing and payment of taxes.
Actionable Recommendations for Small Business Owners
To stay compliant, small business owners should:
- Register for necessary tax IDs and permits through the Nebraska Department of Revenue.
- Use trusted software to accurately calculate, collect, file, and remit sales tax.
- Consult the Department's website, FAQs, and resource centers for up-to-date information.
- Contact Nebraska Taxpayer Assistance Centers for personalized guidance.
- Leverage state and local small business support programs as needed.
Further Assistance and Resources
For additional help on Nebraska's tax system, small businesses can consult:
- The Nebraska Department of Revenue website
- Nebraska Business Development Center advisors
- The Department of Economic Development
- Local chambers of commerce and industry associations
- Small business lenders like Nebraska Bankers Association and Nedco
Following proper tax rules and procedures is crucial for the success of small businesses in Nebraska. With preparation and utilization of available resources, owners can effectively manage their tax obligations.
