Filing taxes for a small business can be confusing and time-consuming. Many business owners in New Hampshire likely feel overwhelmed when trying to understand all the state's tax requirements and save money.
This guide promises to clearly explain New Hampshire's key taxes, recent changes, filing requirements, and money-saving strategies tailored specifically for small business owners.
You'll learn the critical differences between the Business Profits Tax and Business Enterprise Tax, how LLCs are taxed, which business structure minimizes your tax burden, where to find deductions, and step-by-step instructions for completing state tax returns.
Introduction to New Hampshire's Tax Landscape for Small Businesses
New Hampshire has a business-friendly tax structure that can benefit small businesses. However, it's still important to understand the key taxes that may impact your small business.
Understanding the New Hampshire Tax Guide for Small Businesses
The state of New Hampshire publishes a tax guide for businesses that provides an overview of different tax obligations, instructions for filings and payments, and resources for additional help. As a small business owner, familiarizing yourself with this guide can help ensure you are compliant.
Some key things the guide covers related to small business taxes include:
- Business Profits Tax (BPT)
- Business Enterprise Tax (BET)
- Interest and Dividends Tax
- Property taxes
- Self-employment taxes
Key Taxes Small Businesses Should Understand
While New Hampshire does not have personal income tax or sales tax, some key taxes small businesses still need to pay include:
- Business Profits Tax (BPT): 8.5% tax on business profits over $50,000. This functions similarly to corporate income tax in other states.
- Business Enterprise Tax (BET): 0.6% to 0.75% tax on the enterprise value tax base of the business. This is a tax on the value of doing business in NH.
- Property taxes: Tax assessed on commercial property owned by the business.
- Self-employment taxes: 15.3% Federal tax paid on net earnings if structured as a sole proprietorship or partnership.
Properly budgeting for these taxes and making quarterly estimated payments is important for small business owners in New Hampshire.
Navigating the New Hampshire Department of Revenue Administration
The Department of Revenue Administration (DRA) oversees tax administration in New Hampshire. The DRA website provides many resources for small businesses including:
- Tax forms and instructions
- Online payment systems
- Tax calculators
- Contact information for taxpayer services
Leveraging these resources can help small business owners properly file and pay business taxes in compliance with state law.
Recent Changes and Ongoing Initiatives
Some recent tax changes impacting New Hampshire small businesses include:
- An increase in the BET tax rate from 0.6% to 0.675% starting in 2021.
- Ongoing discussion around property tax reform to reduce burdens while still funding local communities.
Staying up-to-date on changes and participating in public commentary during policy debates can help small business owners plan for the future.
What is the small business tax in NH?
The main state taxes for small businesses in New Hampshire are:
- Business Profits Tax (BPT): This is an income tax assessed on profits from business activities conducted in New Hampshire. The BPT rate is currently 7.7% for tax periods ending on or after December 31, 2019. It will be reduced to 7.6% for periods ending after December 31, 2022.
- Business Enterprise Tax (BET): This is a tax on the enterprise value tax base of the business. The BET rate is 0.6% for businesses with enterprise value tax base over $100,000. Businesses under this threshold pay $25.
Some key things small NH businesses should know about state taxes:
- Sole proprietors report business profits on their personal tax return and pay BPT at the individual rate.
- NH does not have a general sales tax, but does have selective sales taxes on restaurant meals, hotel rooms, car rentals, etc.
- NH has lower property and payroll taxes compared to neighboring states. However, property used for business purposes is taxed.
- The BPT allows various deductions like ordinary and necessary business expenses, equipment purchases, wages paid to employees, etc. to reduce tax liability.
Ideally, small businesses should consult a tax professional to develop customized tax strategies and ensure full compliance with NH state tax laws and regulations. Proper documentation of deductions and following all applicable rules is key.
What is the difference between BPT and BET in NH?
The two main corporate taxes that businesses in New Hampshire need to be aware of are the Business Profits Tax (BPT) and the Business Enterprise Tax (BET).
Key Differences
Here are the key differences between the BPT and BET:
- BPT
- Based on income - 8.5% tax rate applied to income over $50,000
- Applies to corporations, partnerships, LLCs, etc.
- Allows deductions to reduce taxable income
- BET
- Based on enterprise value - 0.75% tax rate
- Applies only to corporations and LLCs taxed as corporations
- No deductions allowed
So in summary:
- BPT is an income tax with a 8.5% rate over $50K income
- BET is a value tax with a 0.75% rate on compensation paid out
Calculating Owed Taxes
To calculate taxes owed:
- BPT: Take taxable income over $50K and multiply by 8.5%
- BET: Take total compensation paid out (including dividends and interest) and multiply by 0.75%
Most NH corporations will need to file and pay both the BPT and BET each year. Proper tax planning and preparation is essential to minimize taxes legally owed. Consulting a tax professional can help identify strategies like business entity selection, deductions, income shifting, and more.
How are LLCs taxed in New Hampshire?
New Hampshire LLCs can choose how they want to be taxed by filing IRS Form 8832. By default, single-member LLCs (SMLLCs) are taxed as sole proprietorships and multi-member LLCs are taxed as partnerships.
SMLLCs
- Taxed like sole proprietors
- Profits and losses reported on owner's personal tax return
- No special forms needed
- Subject to self-employment tax
Multi-Member LLCs
- Taxed as partnerships by default
- Must file IRS Form 1065 and issue K-1s to members
- Profits/losses passed through to members' personal tax returns
- Not subject to self-employment tax
You can elect different tax treatment for your NH LLC using IRS Form 8832. For example, you can choose to be taxed as an S corporation which offers some tax savings. When making the decision, consider your business structure and goals. Consulting a tax professional can ensure you choose the best option.
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How tax friendly is New Hampshire?
New Hampshire is considered a very tax-friendly state for small businesses and individuals. Here are some of the key benefits:
No Sales Tax
New Hampshire is one of only five states with no statewide sales tax. This can result in significant savings for small businesses when purchasing equipment and supplies. Retail stores in border towns also benefit from increased cross-border shopping.
No Personal Income Tax
New Hampshire does not have a personal income tax on wages or unearned income like dividends and interest. This makes it attractive for small business owners who want to retain more of their earnings.
Low Business Taxes
While New Hampshire does have a Business Profits Tax, the rates are relatively low compared to other states. The BPT rate is 7.7% for businesses with over $50,000 in taxable income. There is also a $25 annual LLC fee.
Property Tax Exemptions
New Hampshire offers property tax exemptions for certain business equipment and machinery. This reduces the property tax burden for capital-intensive small businesses.
So while not completely tax-free, New Hampshire offers a competitive tax environment for small businesses looking to retain more of their hard-earned income. The lack of sales and income taxes in particular makes it a very appealing state from a tax perspective.
Key Strategies for New Hampshire Tax Compliance and Savings
Outlining essential tax planning strategies and compliance tips for small businesses operating in New Hampshire.
Choosing the Right Business Structure
When starting a small business in New Hampshire, one of the most important tax decisions is choosing the right business structure. Here are some key considerations:
- LLCs and S-corporations provide liability protection and allow profits/losses to pass through to the owners' personal tax returns. This avoids double taxation.
- Sole proprietorships and partnerships are simpler, but don't provide liability protection. Profits are passed through and taxed at the owners' individual income tax rates.
- Consider the New Hampshire Business Profits Tax (BPT) and Business Enterprise Tax (BET) implications. LLCs and partnerships file NH-1065 to report BPT. S-corps file NH-1120S.
- The New Hampshire BET is based on compensation paid, interest paid, and dividends paid. Choosing an S-Corp structure may allow businesses to minimize BET liability.
Claiming All Valid New Hampshire Tax Deductions
Taking advantage of every allowable business expense deduction can significantly reduce small business tax liability in New Hampshire:
- Machinery and equipment purchases can be deducted under IRS Section 179. Up to $1 million can be deducted in the first year.
- Inventory, wages, rent, utilities, repairs and other ordinary & necessary business expenses are deductible. Maintain thorough documentation.
- Carefully track vehicle, travel, meal and other expenses related to business operations. IRS Publication 535 has details on allowable write-offs.
- Consult a CPA to verify your specific business qualifies for particular deductions before claiming them.
Understanding New Hampshire Business Enterprise Tax Apportionment
Companies doing multi-state business must apportion income to New Hampshire for BET using one of the following methods:
- Three factor apportionment based on NH property, payroll and sales
- Double weighted sales factor puts more weight on location of sales
- Single sales factor apportions income based solely on New Hampshire sales
Most small businesses opt for the single sales factor as it usually results in the lowest tax.
Leveraging the New Hampshire Business Tax Calculator
The New Hampshire Department of Revenue site provides a business tax calculator to estimate liability. Key inputs:
- Business profits and revenue
- Salaries and interest paid
- Property values
- Apportionment method
After inputting data, the calculator estimates taxes owed. This helps businesses plan finances.
Navigating New Hampshire Business Profits Tax Instructions and NH-1120-WE Instructions
Use these resources when filing BPT and BET returns:
- NH-1120 instructions detail requirements for completing S-Corp BPT returns.
- The NH-1120-WE worksheet computes the BET tax. It determines compensation, interest and dividends attributable to NH.
Thoroughly reviewing instructions can help avoid costly mistakes or penalties for small business owners.
Maximizing Deductions and Credits in New Hampshire
Small businesses in New Hampshire can reduce their tax burden by taking advantage of available deductions and credits.
Identifying Business Tax Deductions as Ordinary and Necessary
Expenses that are common and appropriate in operating a business are considered "ordinary and necessary" and can be deducted. Some examples include:
- Office supplies and equipment
- Professional services like accountants and lawyers
- Employee salaries and benefits
- Rent, utilities, insurance, and repairs for business property
Refer to IRS Publication 535 for more details on allowable deductions. Keep accurate records to substantiate expenses.
Utilizing Exemption for Property Taxes in New Hampshire
New Hampshire offers property tax exemptions to certain businesses:
- Manufacturing facilities may qualify for exemption under the Industrial Construction Exemption.
- Research and development facilities can receive exemption as well.
- Exemptions may also apply to pollution control facilities or energy production projects.
Check with the New Hampshire Department of Revenue Administration to see if a property tax exemption applies to your business.
Comprehending the New Hampshire Throwback Rule
The throwback rule states that sales made by a New Hampshire company to a state where it does not have physical presence (a nexus) may be “thrown back” and taxed in New Hampshire. Understanding which states you have nexus in can help minimize throwback taxes.
Employing Tax-Planning Strategies for Businesses Structured as LLCs
Limited Liability Companies (LLCs) allow pass-through taxation, avoiding corporate taxes. Recommended tax strategies include:
- Tracking partner capital accounts to facilitate distributions
- Paying estimated taxes quarterly to avoid underpayment penalties
- Issuing K-1s to partners for reporting income/losses
- Deducting business expenses on personal returns
Proper planning can optimize an LLC’s tax situation.
Claiming Payroll Taxes and Self-Employment Tax Deductions
Businesses can deduct the employer portion of payroll taxes paid on employee wages. Self-employed individuals can deduct the self-employment tax paid through their personal tax return. Maintain detailed payroll records and payments to substantiate these deductions.
Filing and Reporting: A Step-by-Step Process
Filing business taxes can be complicated, but breaking down the process into clear steps makes it more manageable for small business owners in New Hampshire.
Completing the New Hampshire Business Enterprise Tax Return
The New Hampshire Business Enterprise Tax (BET) return, form NH-1120-WE, must be filed by any business structured as an LLC, partnership, corporation, or other entity. Here are key steps when preparing the BET:
- Gather necessary documentation such as profit/loss statements, balance sheets, NH Schedule K-1s, and apportionment worksheets.
- Calculate total sales everywhere and New Hampshire sales to determine the apportionment percentage.
- Complete page 1 of the return with business details, apportionment calculation, and tax due.
- Finish any applicable schedules (details assets/liabilities, tax credits, etc.)
- Submit return and payment by April 15 to avoid penalties and interest. E-file for faster processing.
Keeping detailed records throughout the year streamlines this process.
Understanding Schedule K-1 for Partnerships and S Corporations
Schedule K-1 reports a business's income, losses, deductions, and credits, which then get transferred to each owner's individual IRS Form 1040 based on ownership percentage. Key points:
- Multiple Schedule K-1s get issued - one to each partner/shareholder.
- Boxes 1-13 on Schedule K-1 report ordinary business income, rental income, deductions, etc.
- Partners then transfer items from their K-1 to their 1040 tax return.
- Issuing Schedule K-1s must be completed by March 15 each year.
Proper reporting on Schedule K-1 enables correct individual tax filing.
Utilizing a Small Business Tax Preparation Checklist
A tax preparation checklist ensures all required documents and information are organized for tax time:
- Income statements, balance sheets, cash flow reports
- List of assets bought and sold during the year
- Payroll records, 1099 forms, W-2s issued to employees
- Receipts for business expenses and mileage logs
- Health insurance paperwork if claiming premiums
- Retirement plan contributions eligible for deductions
Following a comprehensive checklist reduces errors and omissions on tax returns.
Choosing the Right Tax Preparation Software for Small Businesses
Tax software should suit a small business's specific needs and complexity. Considerations when evaluating software:
- Cost, discounts available
- Integration with accounting software
- Ability to handle business structure (LLC, S-corp, etc.)
- Support for multi-state tax returns
- Tax planning and estimate tools
- E-file and digital storage capacity
- Data security measures
The optimal software saves money and streamlines filing.
Addressing Excise Taxes and Other Specialized Levies
Beyond income tax, certain businesses pay excise taxes on goods sold or property owned. For example:
- Fuel tax - tax on production/import of motor fuels like gasoline. Paid monthly.
- Alcohol and tobacco tax - at wholesale level based on volume. Paid monthly.
- Property tax - tax towns/cities levy on real estate and equipment. Paid annually.
Understanding specialized taxes ensures full compliance and avoidance of penalties.
Following structured steps for each tax requirement reduces chances for errors while filing. Using checklists, leveraging software, and identifying additional tax obligations makes the process smooth and compliant.
Resources and Next Steps for Business Owners
Seeking Professional Assistance for New Hampshire Tax Matters
When handling business taxes, it's important to know when to seek help from a professional. Complex tax situations may require working with a certified public accountant (CPA), tax attorney, or enrolled agent.
Consider getting professional tax help if:
- Your business has grown substantially in size and complexity
- You plan to expand into additional states with nexus tax obligations
- You need help resolving a tax notice or undergoing an audit
- Your tax situation involves complex issues like depreciation, carryovers, etc.
- You don't have the time or expertise to properly handle taxes yourself
Hiring a tax professional can give you confidence that your taxes are done correctly, help you identify deductions you may have missed, and provide advice tailored to your unique situation.
Software, Calculators, and Other Online Tools
The New Hampshire Department of Revenue Administration (DRA) provides several online resources useful for DIY tax prep, including:
- Tax calculators to estimate tax liability
- Fillable PDF forms for New Hampshire tax returns
- Guidance documents covering tax rules and regulations
Additionally, small business tax software like TurboTax can help accurately calculate deductions, credits, income allocation, etc. These programs walk you through questions to help complete required tax forms.
Staying Up-To-Date on Changes in New Hampshire Tax Legislation
Laws and regulations governing New Hampshire taxes do change periodically. As a business owner, it’s essential to stay current on new legislation to remain compliant and take advantage of any new deductions or credits.
Helpful resources include:
- The DRA website and email updates
- Tax sites like Wolters Kluwer covering new tax developments
- Business tax webinars hosted by the DRA
Planning Ahead with New Hampshire Tax Strategies
As part of ongoing business planning, you should develop proactive tax minimization strategies such as:
- Carefully structuring your business entity to optimize tax treatment
- Contributing to retirement accounts to reduce taxable income
- Tracking deductible expenses throughout the year
- Evaluating eligibility for tax credits and incentives
- Reviewing depreciation options for assets
- Considering tax implications of future business decisions
Meeting with a tax professional can help align tax strategies with your overall business goals. Be sure to address tax planning before year-end to maximize deductions and credits.
