What taxes apply to a new small business?

Taxes Applicable to a New Small Business in Illinois

Understanding the tax obligations for a new small business in Illinois is crucial for smooth operations and compliance. Below are the key taxes you should plan for when starting your business.

1. State Income Tax

Illinois imposes a flat state income tax on business income. As of 2026, the rate is 4.95%. Businesses structured as corporations, LLCs, partnerships, or sole proprietorships must report income accordingly.

2. Sales and Use Tax

If your business sells tangible goods or certain services, you must collect and remit sales tax. Illinois has a state sales tax rate of 6.25%, but local jurisdictions can add additional rates, so your total rate may vary depending on your business location.

3. Employer Payroll Taxes

• Unemployment Insurance Tax: Illinois requires employers to pay unemployment insurance taxes based on payroll.
• State Income Tax Withholding: Employers must withhold Illinois state income tax from employee wages.
• Federal Payroll Taxes: Including Social Security and Medicare taxes, which must be withheld and matched by the employer.

4. Corporate Franchise Tax (If Applicable)

Corporations registered in Illinois may be subject to a franchise tax based on their paid-in capital. This is less common for small businesses but important to consider for incorporated entities.

5. Other Local Taxes

Depending on your city or county, additional taxes such as local business taxes, utility taxes, or special district taxes may apply. Check with your local Illinois county or city clerk for specific requirements.

Operational Considerations

• Register for Taxes: Register your business with the Illinois Department of Revenue to obtain necessary tax accounts.
• Maintain Accurate Records: Keep detailed bookkeeping records to track income, expenses, and tax payments.
• File Timely Returns: Ensure all tax returns and payments are filed on time to avoid penalties.
• Use Automation Tools: Consider payroll and accounting software to streamline tax calculations and filings.
• Consult a Tax Professional: While this guidance is operational, engaging a tax advisor can help optimize tax planning and compliance.