Best States for Small Business Taxes

If your veterinary practice is in Alaska or South Dakota, your tax burden is one of the lowest in the country. But if you call New Jersey or New York home, you’re paying twice as much in taxes. Where does your state rank on the list of the best and worst states for small business taxes?

The tax burden is an important measure for anyone to consider when moving to a new state, but it’s especially important for small business owners.

Practice owners who live in states where less of their salary is going to local and state taxes can use more of their income to reinvest in their practice, add new employees, expand their client base and add new departments.

Fundera, a website that offers free services to help people find affordable small business loans, used data from the IRS, the Tax Foundation and the U.S. Census Bureau to find out which states offered the best tax rates for small business taxes.

Researchers started with the average salary for a small business owner in the United States, which is $76,010, and then applied the maximum possible deduction for single individuals to find the taxable income for the average business owner in each state.

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This number was then multiplied by each state’s tax burden — an index that includes 26 individual tax measurements such as income taxes, property taxes and alcohol taxes — to find what the average entrepreneur would pay in state and local taxes.

After crunching the numbers, researchers formed a list of the best and the worst states for small business taxes. Here’s what they found. Click here to view the complete data for each state.

1. Alaska

Average small business owner state & local taxes: $4,930.42

State tax burden (as % of income): 6.5%

Top state income tax bracket: No state income tax

2. South Dakota

Average small business owner state & local taxes: $5,391.10

State tax burden (as % of income): 7.1%

Top state income tax bracket: No state income tax

3. Louisiana

Average small business owner state & local taxes: $5,422.16

State tax burden (as % of income): 7.6%

Top state income tax bracket: 6%

4. Wyoming

Average small business owner state & local taxes: $5,428.41

State tax burden (as % of income): 7.1%

Top state income tax bracket: No state income tax

5. Tennessee

Average small business owner state & local taxes: $5,584.58

State tax burden (as % of income): 7.3%

Top state income tax bracket: 5%

6. Texas

Average small business owner state & local taxes: $5,759.25

State tax burden (as % of income): 7.6%

Top state income tax bracket: No state income tax

7. South Carolina

Average small business owner state & local taxes: $5,877.73

State tax burden (as % of income): 8.4%

Top state income tax bracket: 7%

8. New Hampshire

Average small business owner state & local taxes: $5,987.03

State tax burden (as % of income): 7.9%

Top state income tax bracket: 5%

9. Oklahoma

Average small business owner state & local taxes: $6,011.25

State tax burden (as % of income): 8.6%

Top state income tax bracket: 5%

10. New Mexico

Average small business owner state & local taxes: $6,073.59

State tax burden (as % of income): 8.7%

Top state income tax bracket: 4.9%

Continue to the next page for more statistics.

States with highest top marginal income tax rates:

  • California
  • Maine
  • Oregon
  • Minnesota
  • Iowa
  • New Jersey

States with the highest maximum deduction for a single filer:

  • Connecticut: $14,500
  • Wisconsin: $10,250
  • Rhode Island: $8,275
  • New York: $7,900
  • North Carolina: $7,500

States with no state income tax:

  • Alaska
  • Florida
  • Nevada
  • Texas
  • South Dakota
  • Washington
  • Wyoming