What taxes apply to a new small business?

Taxes Applicable to New Small Businesses in Michigan

When starting a small business in Michigan, understanding the tax obligations is crucial for smooth operations and compliance. Below are the primary taxes that typically apply to new small businesses in the state.

State Taxes for Michigan Small Businesses

• Michigan Business Income Tax (BIT): As of 2026, most businesses operating in Michigan are subject to the Business Income Tax, a 4.25% tax on business income. This tax applies to C corporations, S corporations, and other pass-through entities.
• Sales and Use Tax: Michigan imposes a 6% sales tax on most retail sales of tangible personal property and certain services. If your business sells taxable goods or services, you must register for a sales tax license and collect this tax from customers.
• Withholding Tax: If you have employees, you must withhold Michigan income tax from their wages. Register with the Michigan Department of Treasury for withholding tax purposes.
• Unemployment Insurance Tax: Employers in Michigan are required to pay state unemployment insurance taxes based on employee wages. Register with the Michigan Unemployment Insurance Agency to manage these payments.

Federal Tax Considerations

• Federal Income Tax: All businesses must file federal income tax returns. The structure of your business (sole proprietorship, LLC, corporation) determines how income is reported and taxed.
• Payroll Taxes: If you hire employees, you are responsible for federal payroll taxes, including Social Security, Medicare, and federal unemployment taxes.

Operational Tips for Managing Taxes

• Register Early: Ensure your business is registered with the Michigan Department of Treasury and other relevant agencies to obtain necessary tax accounts and licenses.
• Implement Bookkeeping Systems: Use accounting software to track income, expenses, payroll, and sales tax collections accurately.
• Automate Tax Filings: Consider automation tools to manage tax deadlines, filings, and payments to avoid penalties.
• Stay Updated: Tax laws and rates can change. Regularly check Michigan Department of Treasury updates and consult with tax professionals for compliance.