Michigan Business Tax
Effective January 1, 2008, the Single Business Tax as we have known it for 30+ years is no longer the business tax for Michigan. The Single Business Tax was often criticized for taxing compensation. The MBT no longer requires this “add-back” of compensation.
The legislature enacted the Michigan Business Tax (MBT) in the summer of 2007. We all heard a lot about the “services tax” which was repealed December 1, 2007 and now the attention will turn to the MBT.
As our economy continues to expand globally, the MBT was developed to reward investment in capital, jobs and research & development within the state of Michigan. It also captures tax revenues from businesses which were previously not taxed in Michigan.
Business income will be taxed at a rate of 4.95% and a Margins tax on sales minus purchases of tangible property at .8%. Due to the elimination of the services tax and the Governor’s requirement that the tax revenues lost be replaced in order to balance the budget, there is a “surcharge tax” which will exist through the year 2017 (unless re-legislated). This surcharge is 21.99% of your MBT liability after allocations and apportionments but before credits.
As was the case with the SBT, if your gross receipts are less than $350,000 you are not required to file Michigan Business Tax. However, with the MBT, if gross receipts are between $350,000 and $700,000 there is a smoothing of the tax rate. This means that you pay fraction of the tax liability using the formula ($700,000 – gross receipts)/$350,000. This smoothing formula was not part of the former Single Business Tax.
Lastly, there are numerous credits available under the new MBT. Certain of them are limited but each of them encourages jobs, investments and research & development within the State of Michigan.
If you are not a 12/31 year end client, please contact your CPA as there are special rules for filing a final Single Business Tax versus your initial Michigan Business Tax return.
Business Tax – The Basics
If you are starting a new business, or you are simply looking to update your knowledge in the area of business tax, you should seriously consider using a firm of tax accountants to assist you. Taxation is a complex area and, with regulations changing on a regular basis, it is nearly impossible for any individual business owner to stay on top of things.
Using a tax professional on the other hand is the only certain way you know you are doing things properly and fulfilling obligations, whilst at the same time ensuring that you are not paying too much tax.
To clarify the situation, let’s take a look at some of the basics you need to understand about the way business tax operates for Australian businesses.
Every Australian business must register for a tax file number and lodge annual income tax returns. In most instances you will also have to apply for an Australian Business Number which must be used to complete activity statements and lodged with the Australian Tax Office on the due dates. These returns ensure that you are paying the correct amount of GST. If you have employees, or are paying yourself as an employee, you need to record all payments made and include this on your business activity statement. At the end of the financial year you must also lodge a PAYG installment return. This is used by the Australian Tax Office to calculate the correct amount of income tax deductions your business has to pay. This means that you must also register for PAYG withholding if you make payments and have to withhold tax from your employees. These amounts have to be paid quarterly or, alternatively, whenever your BAS is due. The goods and services tax applies to any business that is carrying on an enterprise where the annual turnover is $75,000 or more. Business Activity Statements (BAS) must be lodged at least annually, although most businesses choose to lodge them quarterly. If you are in the wine industry or sell luxury cars, you also have to register for the wine equalisation tax or the luxury car tax. If you are paying your employees any form of benefit, you must also register for the fringe benefits tax. This may require you to lodge an annual fringe benefits tax return, and to pay quarterly installments on your activity statement. Balancing payments are also due to be made on 21 May every year. One of the most important aspects of taxation is the superannuation guarantee. Although you don’t have to register you must pay a minimum level of superannuation contributions for every eligible employee. This includes directors and contractors in some circumstances. At the moment, the minimum level of contribution is 9% of an employee’s ordinary time earnings.
The complexity which the above matters raise highlights the importance of using a qualified professional to assist you with every aspect of your business. Using a qualified firm of tax accountants is the first step every business owner should take to ensure they set up their operation effectively and efficiently.
Small Business – 7-Item Beginner’s Checklist
I get frequently asked about what are the most common things people forget to take into account when they are considering opening a small business.
It is scary, isn’t it? Don’t be afraid. Go through this checklist and you’ll be fine.
1. What means of income will your small business employ? Will you do affiliate marketing on the internet, offline sales in your community, both or have you got something else in mind? Who else is doing it?
2. How good a demand is there for your small business ideas? If it is poor, can a market be found or created that would need this product or service in large enough quantities to make a good profit?
3. Whether there is a great deal of demand or not, how good is your competition? A lot of activity does not necessarily mean the market is “saturated”. Many markets are filled with garbage. A good, honest site that over delivers can quickly rise to the top and make a killing.
4. You will need to advertise if you are opening a small business. If you are going on the internet, you can’t just hang a sign over your door. Will you use mainly SEO’d articles, Pay Per Click (risky if you are a newbie), PPL (also tough on a newbie’s wallet), organic traffic or something else to promote your new enterprise?
5. How will you collect money safely from your customers and protect yourself at the same time from all the predators on the web?
6. Whatever your decisions are, are they based on some get rich quick scheme? If they are, rethink ALL your decisions. There is no get rich quick on the internet, but there is plenty of get rich after some slow, diligent work:-)
7. Last, but not least: What is your passion? The internet allows you to start a website on what you love. You don’t have to worry about the local market like a traditional bricks and mortar business.
Can you see how these simple items can start your business off on a foundation of concrete and steel? Take your time with your small business ideas, do plenty of reading, do a lot of searches and surfing. See how the top 10 sites on any search you do are doing it.
If they are in the top 10, they have what you want. That’s how they got there. You can’t buy Google or other search engine ranking.
“If you don’t own your life, what’s the point?”
- Nori Evoy (Very Successful Web Business Person)