On June 30, 2021, Governor Ducey signed new legislation that included significant overhauls to state tax laws. Arizona’s Budget Plan, or SB 1783, includes major changes to income tax filing rules that could have big impacts on small businesses. At The Royce CPA Firm, we are following these changes, which could still face challenges from voters, and updating our tax projection procedures to help you make the best decisions for filing under the new legislation. Here is a look at the biggest change you may face as a business owner.
Small Business Income Reporting
Typically, you have reported your business income on your personal tax return. Starting in 2021, under the new law, small business owners can now complete a separate Arizona tax return and file the business income on that return instead of on a personal return. This significant change will impact every small business owner, so it is important to work with your CPA to determine which filing process is the best fit for you.
Benefits of Separate Filings
There are two benefits for filing small business income on a separate return. If you make over $250,000 or are married with a joint income of $500,000, then you will be subject to the state’s new Education Surcharge Tax. This tax was voted on and approved in November 2020 in order to generate revenue for teacher salaries. By filing a separate return for business income, you will be able to push your personal incomes below the threshold for the new tax. Another benefit is that you would be able to claim your business income tax on your federal tax returns.
Navigating the new tax laws can be challenging, but The Royce CPA Firm is here to help. In addition to monitoring legal and voter challenges to the new laws, we will help you make the right decisions to simplifying your filing while minimizing your tax burden. Talk to a CPA in Tucson today by calling (520) 321-4626.