Understanding Taxes for Sole Proprietors in Tennessee

What taxes do sole proprietors pay in Tennessee?
The State of Tennessee does not have a general income tax for individuals. Accordingly, your sole proprietorship income is not taxable in Tennessee. Tennessee has the Hall income tax, which is assessed only against interest and dividend income in excess of certain limits.
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In Tennessee, sole owners must pay specific taxes in order to legally operate their company. The kind, location, and size of the business all affect these taxes in different ways. The goal of this page is to offer a thorough overview of Tennessee’s tax laws for sole proprietors.

Tennessee taxes for sole proprietors

You must pay self-employment tax, which is a fusion of Social Security and Medicare taxes, if you are a solo owner in Tennessee. 15.3% is the current self-employment tax rate, with 12.4% going to Social Security and 2.9% going to Medicare. The Medicare tax, on the other hand, is levied on all of your net income, but the Social Security tax only applies to the first $142,800 of your net income for the year.

In addition, sole owners must pay federal and state income taxes on their net profits. Even though there is no state income tax in Tennessee, sole proprietors must still submit an annual business tax return to the government. The federal income tax rates range from 10% to 37%, depending on your income level. Is it necessary for a sole proprietor to obtain an EIN? It’s advised but not essential for sole owners to obtain an Employer Identification Number (EIN). An EIN is a special nine-digit number given to your firm by the IRS to be used for tax purposes. It’s also necessary if you intend to register a business bank account or hire staff in the future.

Negative aspects of a DBA The term “Doing Business As,” or DBA, refers to a business name that differs from your given name or the legal name of your company. A DBA’s primary drawback is that it offers no legal protection for your private assets. Your personal assets may be at danger if your company is sued. Is It Worth It to Get a DBA?

If you want to run your business under a name other than your given name or formal business name, establishing a DBA is worthwhile. You can use this to generate a professional image for your firm and for branding purposes.

Do DBAs Submit Individual Tax Returns?

A DBA does not submit a different tax return. The formal name of the business entity, such as an LLC or sole proprietorship, is used to file the tax return.

In conclusion, sole proprietors in Tennessee must pay federal, state, and self-employment taxes. For tax-related reasons, it is advised that sole owners obtain an EIN. Although a DBA can be helpful for branding, it offers no legal protection for personal assets and is not required to file a separate tax return. To avoid fines and legal troubles, it’s critical for sole owners to understand their tax responsibilities.

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