Pay Your North Carolina Small Business Taxes

Paying small business taxes is a reality that all North Carolina business owners must face. Making sure that you file your federal, local, and state taxes on time is a big part of keeping your business legally compliant, and critical for long-term success. However, many new business owners aren’t familiar with business taxes in North Carolina, and even the most experienced entrepreneurs still find the process intimidating. That’s why we created this short guide to North Carolina small business taxes. Read on to learn about the types of taxes North Carolina business owners may face, when and how to file them, and which of our products and services can make the process easier when the time comes. 

If you need more complete legal compliance help, check out our Worry-Free Compliance service, which keeps your business documents organized and can help keep you on track with required business filings. 

Step 1: Establish your North Carolina business’s corporate income tax obligations

The first step in learning how to file small business taxes in North Carolina is understanding how businesses are taxed, which largely depends on its business entity structure. Businesses that are pass-through entities (sole proprietorship, partnership, corporation, S Corporation, limited liability company) don’t pay income taxes on profits or earnings. Instead, the business profits “pass-through” the company to the owner. Owners pay taxes on business income on their personal tax returns. 

However, a corporation pays income taxes on earnings before owners receive any profits or dividends from the company. North Carolina charges corporations state income taxes. The North Carolina business tax rate is 2.5% for tax years beginning on or after January 1, 2019. 

Net taxable income is the basis for the state corporate income taxes. Companies conducting business in other states need to allocate and apportion their income to calculate their business taxes in North Carolina.

Corporations with an income tax liability of $500 or more pay estimated income taxes. The payments are due during the fourth, sixth, ninth, and twelfth months of the taxable year on the 15th day of the month. Failing to pay estimated taxes results in an interest penalty. 

The due date for filing business income tax returns is the 15th day of the fourth month after the end of the income year. However, a corporation may request a six-month extension to file an income tax return. 

Step 2: Determine your North Carolina business’s employment taxes

North Carolina requires employers to withhold state income taxes from employee payroll. All employers must complete Form NC-BR to obtain a North Carolina withholding identification number. Employers file withholding returns and pay withholding taxes through the North Carolina Department of Revenue. 

The amount of withholding taxes deducted from an employee’s payroll depends on the employee’s N.C. Employee’s Withholding Allowance Certificate and the North Carolina tax tables. It’s the employer’s responsibility to obtain the certificate when hiring new employees to calculate the correct withholding rate based on the tax tables. 

The amount of the withholding taxes determines the filing frequency. Payment of withholding taxes is either monthly or quarterly for most small businesses. Companies with large payrolls may file semi-weekly. The state also requires an annual withholding tax return from employers. 

Small businesses may pay withholding taxes and file returns through the Online Filing and Payments System or mail. However, companies with an average of $20,000 or more in withholding taxes must pay by electronic funds transfer (EFT). 

Not sure how to stay compliant? Learn more about legal compliance for small business owners.

Step 3: Establish your North Carolina business’s additional state tax obligations

Many states charge additional taxes. Your small business in North Carolina may have additional state tax obligations.

Sales and Use Tax

North Carolina imposes sales and use tax on goods sold within the state. Many local governments also impose a sales tax for items sold within their jurisdiction. Companies collect state and local sales tax to remit to the taxing authority.

The state sales tax rate as of October 1, 2020, is 4.75%. Counties add their tax rate to the state tax rate to calculate the total tax rate. Some items sold in North Carolina are subject only to state sales tax. Other items may be subject to a combined general tax rate or a miscellaneous rate. A small business owner is responsible for verifying the correct tax rate for goods sold and collecting that tax rate from consumers. 

A list of who should register for sales and use tax is on the North Carolina Department of Revenue’s website. 

Unemployment Tax

A small business in North Carolina must pay unemployment insurance tax if its gross payroll is at least $1,500 in a calendar quarter or if it employs at least one person during 20 different weeks in a calendar year. In addition, other companies may be subject to unemployment tax. A complete list is available online at the NC Commerce website.

Companies register with the Division of Employment Security of the North Carolina Department of Commerce to file and pay unemployment taxes. Companies create an online account to manage their unemployment taxes. 

Tax rates for unemployment insurance are based on an experience rating system. After an employer is eligible to receive a reduced tax rate, the state calculates the tax rate annually based on experience. Tax rates range from 0.06% to 5.760%. 

Companies report wage and tax information by filing Quarterly Tax and Wage Reports. Quarterly reports are due on April 30, July 31, and October 31 for the prior quarter and January 31 for the previous year’s fourth quarter.

Franchise or Privilege Tax

Some states charge businesses a franchise or privilege tax to conduct business within their state. North Carolina imposes an annual franchise tax on corporations authorized to do business in the state unless the company is specifically exempted under state law. The due date for franchise tax returns is the 15th day of the fourth month after the end of the income year. 

The franchise tax rate for C corporations is $1.50 per $1,000 of the company’s net worth base. The minimum North Carolina business tax rate for franchise taxes is $35. The franchise rate for S corporations is $200 on the first $1 million of the corporation’s tax base and $1.50 per $1,000 over $1 million. 

Excise Tax

Excise taxes are charged on specific items sold within North Carolina. The tax is in addition to sales and use tax. Not all items are subject to an excise tax. Items subject to excise tax include, but are not limited to, cigarettes, cell phone plans, alcohol, real estate, and gasoline. 

Step 4: Prepare to file and pay your North Carolina business taxes

Before you prepare business tax returns, you need to gather documents containing the information needed to complete tax returns. This means that properly tracking income and expenses is crucial. Examples of documents you may need include, but are not limited to:

• Accounting documents
• Bank account statements
• Balance sheets
• Sales reports
• Credit card statements
• Employer wage reports
• Asset purchase statements
• Balance sheet
• Income statement

Our ZenBusiness Money App makes tracking income and expenses quick, easy, and efficient. We help you manage business finances to help grow your company and make tax time less frustrating and time-consuming. 

Filing tax returns and paying taxes is more manageable if you file online. The North Carolina Department of Revenue (NCDOR) collects corporate taxes. Companies may pay corporate income taxes and franchise taxes online through the state’s eServices website. They may also pay withholding and sales tax online. 

Companies must register with the NCDOR to use the eBusiness Center. Registration requires an NCID user ID and password. New business owners learning how to file small business taxes in North Carolina may benefit from reviewing the information provided in the eBusiness Center. 

Do I need an accountant?

Professional accounting help can ensure that your small business taxes are done correctly, especially for new business owners who aren’t familiar with business tax laws and requirements. A mistake with your business taxes could trigger an audit and result in costly fines and penalties. 

How we can help

Managing your own business takes an extraordinary amount of hard work and dedication. With so much on your plate already, worrying about your taxes can make things feel even more complicated. But we are here to help with the ZenBusiness Money App for invoicing and payments. This helps you to easily send custom invoices, accept credit card and bank transfer payments, and manage your clients from an easy-to-use dashboard.

We also provide resources and information to help small business owners. Popular topics include:

• Qualified business deductions
• Self-employment deductions
• Tax-deductible startup expenses
• Tips for small business owners
• Common tax mistakes and their causes 
• Estimating taxes
• Deducting business expenses 
• Tax deductions for self-employed business owners 

If your small business is still in the formation stage, our North Carolina LLC Formation Services or Corporation Formation Services can help you get started.

Our goal is to help you grow your business and remain compliant with state laws for small businesses. If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses to learn more.